SMART and PILTEL vs.

NTC
G.R. No. 151908. August 12, 2003

GLOBE and ISLACOM vs. COURT OF APPEALS

[G.R. No. 152063. August 12, 2003]

DECISION

Pursuant to its rule-making and regulatory powers, the National Telecommunications Commission (NTC)
issued on June 16, 2000 Memorandum Circular No. 13-6-2000, promulgating rules and regulations on the billing of
telecommunications services. Among its pertinent provisions are the following:
(1) The billing statements shall be received by the subscriber of the telephone service not later than 30 days from
the end of each billing cycle. In case the statement is received beyond this period, the subscriber shall have a
specified grace period within which to pay the bill and the public telecommunications entity (PTEs) shall not be
allowed to disconnect the service within the grace period.
(2) There shall be no charge for calls that are diverted to a voice mailbox, voice prompt, recorded message or
similar facility excluding the customers own equipment.
(3) PTEs shall verify the identification and address of each purchaser of prepaid SIM cards. Prepaid call cards and
SIM cards shall be valid for at least 2 years from the date of first use. Holders of prepaid SIM cards shall be given
45 days from the date the prepaid SIM card is fully consumed but not beyond 2 years and 45 days from date of first
use to replenish the SIM card, otherwise the SIM card shall be rendered invalid. The validity of an invalid SIM card,
however, shall be installed upon request of the customer at no additional charge except the presentation of a valid
prepaid call card.
(4) Subscribers shall be updated of the remaining value of their cards before the start of every call using the cards.
(5) The unit of billing for the cellular mobile telephone service whether postpaid or prepaid shall be reduced from 1
minute per pulse to 6 seconds per pulse. The authorized rates per minute shall thus be divided by 10.[1]
The Memorandum Circular provided that it shall take effect 15 days after its publication in a newspaper of
general circulation and three certified true copies thereof furnished the UP Law Center. It was published in the
newspaper, The Philippine Star, on June 22, 2000.[2] Meanwhile, the provisions of the Memorandum Circular
pertaining to the sale and use of prepaid cards and the unit of billing for cellular mobile telephone service took
effect 90 days from the effectivity of the Memorandum Circular.
On August 30, 2000, the NTC issued a Memorandum to all cellular mobile telephone service (CMTS)
operators which contained measures to minimize if not totally eliminate the incidence of stealing of cellular phone
units. The Memorandum directed CMTS operators to:
a. strictly comply with Section B(1) of MC 13-6-2000 requiring the presentation and verification of the
identity and addresses of prepaid SIM card customers;
b. require all your respective prepaid SIM cards dealers to comply with Section B(1) of MC 13-6-2000;
c. deny acceptance to your respective networks prepaid and/or postpaid customers using stolen
cellphone units or cellphone units registered to somebody other than the applicant when properly
informed of all information relative to the stolen cellphone units;
d. share all necessary information of stolen cellphone units to all other CMTS operators in order to
prevent the use of stolen cellphone units; and
e. require all your existing prepaid SIM card customers to register and present valid identification cards. [3]
This was followed by another Memorandum dated October 6, 2000 addressed to all public telecommunications
entities, which reads:
This is to remind you that the validity of all prepaid cards sold on 07 October 2000 and beyond shall be valid
for at least two (2) years from date of first use pursuant to MC 13-6-2000.
In addition, all CMTS operators are reminded that all SIM packs used by subscribers of prepaid cards sold on
07 October 2000 and beyond shall be valid for at least two (2) years from date of first use.Also, the billing unit
shall be on a six (6) seconds pulse effective 07 October 2000.
For strict compliance.[4]
 On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino Telephone Corporation filed
against the National Telecommunications Commission, Commissioner Joseph A. Santiago, Deputy Commissioner
Aurelio M. Umali and Deputy Commissioner Nestor C. Dacanay, an action for declaration of nullity of NTC
Memorandum Circular No. 13-6-2000 (the Billing Circular) and the NTC Memorandum dated October 6, 2000, with
prayer for the issuance of a writ of preliminary injunction and temporary restraining order. The complaint was
docketed as Civil Case No. Q-00-42221 at the Regional Trial Court of Quezon City, Branch 77.[5]
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to regulate the sale of
consumer goods such as the prepaid call cards since such jurisdiction belongs to the Department of Trade and
Industry under the Consumer Act of the Philippines; that the Billing Circular is oppressive, confiscatory and violative
of the constitutional prohibition against deprivation of property without due process of law; that the Circular will
result in the impairment of the viability of the prepaid cellular service by unduly prolonging the validity and expiration
of the prepaid SIM and call cards; and that the requirements of identification of prepaid card buyers and call
balance announcement are unreasonable. Hence, they prayed that the Billing Circular be declared null and void ab
initio.
Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc. filed a joint Motion for Leave
to Intervene and to Admit Complaint-in-Intervention.[6] This was granted by the trial court.
On October 27, 2000, the trial court issued a temporary restraining order enjoining the NTC from implementing
Memorandum Circular No. 13-6-2000 and the Memorandum dated October 6, 2000.[7]
In the meantime, respondent NTC and its co-defendants filed a motion to dismiss the case on the ground of
petitioners failure to exhaust administrative remedies.
Subsequently, after hearing petitioners application for preliminary injunction as well as respondents motion to
dismiss, the trial court issued on November 20, 2000 an Order, the dispositive portion of which reads:
WHEREFORE, premises considered, the defendants motion to dismiss is hereby denied for lack of merit. The
plaintiffs application for the issuance of a writ of preliminary injunction is hereby granted.Accordingly, the
defendants are hereby enjoined from implementing NTC Memorandum Circular 13-6-2000 and the NTC
Memorandum, dated October 6, 2000, pending the issuance and finality of the decision in this case. The plaintiffs
and intervenors are, however, required to file a bond in the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00), Philippine currency.
SO ORDERED.[8]
Defendants filed a motion for reconsideration, which was denied in an Order dated February 1, 2001. [9]
Respondent NTC thus filed a special civil action for certiorari and prohibition with the Court of Appeals, which
was docketed as CA-G.R. SP. No. 64274. On October 9, 2001, a decision was rendered, the decretal portion of
which reads:
WHEREFORE, premises considered, the instant petition for certiorari and prohibition is GRANTED, in that, the
order of the court a quo denying the petitioners motion to dismiss as well as the order of the court a quo granting
the private respondents prayer for a writ of preliminary injunction, and the writ of preliminary injunction issued
thereby, are hereby ANNULLED and SET ASIDE. The private respondents complaint and complaint-in-intervention
below are hereby DISMISSED, without prejudice to the referral of the private respondents grievances and disputes
on the assailed issuances of the NTC with the said agency.
SO ORDERED.[10]
Petitioners motions for reconsideration were denied in a Resolution dated January 10, 2002 for lack of merit.[11]
Hence, the instant petition for review filed by Smart and Piltel, which was docketed as G.R. No. 151908,
anchored on the following grounds:
A.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC) AND NOT THE REGULAR COURTS HAS
JURISDICTION OVER THE CASE.
B.
THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN HOLDING THAT THE PRIVATE
RESPONDENTS FAILED TO EXHAUST AN AVAILABLE ADMINISTRATIVE REMEDY.
 C.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BILLING CIRCULAR
ISSUED BY THE RESPONDENT NTC IS UNCONSTITUTIONAL AND CONTRARY TO LAW AND
PUBLIC POLICY.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE RESPONDENTS
FAILED TO SHOW THEIR CLEAR POSITIVE RIGHT TO WARRANT THE ISSUANCE OF A WRIT OF
PRELIMINARY INJUNCTION.[12]
Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No. 152063, assigning the following
errors:
1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINES OF
PRIMARY JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDIES DO NOT APPLY
SINCE THE INSTANT CASE IS FOR LEGAL NULLIFICATION (BECAUSE OF LEGAL INFIRMITIES
AND VIOLATIONS OF LAW) OF A PURELY ADMINISTRATIVE REGULATION PROMULGATED BY
AN AGENCY IN THE EXERCISE OF ITS RULE MAKING POWERS AND INVOLVES ONLY
QUESTIONS OF LAW.
2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE ON
EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHEN THE QUESTIONS
RAISED ARE PURELY LEGAL QUESTIONS.
3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE OF
EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHERE THE
ADMINISTRATIVE ACTION IS COMPLETE AND EFFECTIVE, WHEN THERE IS NO OTHER
REMEDY, AND THE PETITIONER STANDS TO SUFFER GRAVE AND IRREPARABLE INJURY.
4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE PETITIONERS IN FACT
EXHAUSTED ALL ADMINISTRATIVE REMEDIES AVAILABLE TO THEM.
5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN ISSUING ITS QUESTIONED
RULINGS IN THIS CASE BECAUSE GLOBE AND ISLA HAVE A CLEAR RIGHT TO AN
INJUNCTION.[13]
The two petitions were consolidated in a Resolution dated February 17, 2003. [14]
On March 24, 2003, the petitions were given due course and the parties were required to submit their
respective memoranda.[15]
We find merit in the petitions.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or administrative
adjudicatory powers. Quasi-legislative or rule-making power is the power to make rules and regulations which
results in delegated legislation that is within the confines of the granting statute and the doctrine of non-delegability
and separability of powers.[16]
The rules and regulations that administrative agencies promulgate, which are the product of a delegated
legislative power to create new and additional legal provisions that have the effect of law, should be within the
scope of the statutory authority granted by the legislature to the administrative agency. It is required that the
regulation be germane to the objects and purposes of the law, and be not in contradiction to, but in conformity with,
the standards prescribed by law.[17] They must conform to and be consistent with the provisions of the enabling
statute in order for such rule or regulation to be valid. Constitutional and statutory provisions control with respect to
what rules and regulations may be promulgated by an administrative body, as well as with respect to what fields are
subject to regulation by it. It may not make rules and regulations which are inconsistent with the provisions of the
Constitution or a statute, particularly the statute it is administering or which created it, or which are in derogation of,
or defeat, the purpose of a statute. In case of conflict between a statute and an administrative order, the former
must prevail.[18]
Not to be confused with the quasi-legislative or rule-making power of an administrative agency is its quasi-
judicial or administrative adjudicatory power. This is the power to hear and determine questions of fact to which the
legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in enforcing
and administering the same law.The administrative body exercises its quasi-judicial power when it performs in a
judicial manner an act which is essentially of an executive or administrative nature, where the power to act in such
manner is incidental to or reasonably necessary for the performance of the executive or administrative duty
entrusted to it. In carrying out their quasi-judicial functions, the administrative officers or bodies are required to
investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from
them as basis for their official action and exercise of discretion in a judicial nature. [19]
In questioning the validity or constitutionality of a rule or regulation issued by an administrative agency, a party
need not exhaust administrative remedies before going to court. This principle applies only where the act of the
administrative agency concerned was performed pursuant to its quasi-judicial function, and not when the assailed
act pertained to its rule-making or quasi-legislative power. In Association of Philippine Coconut Dessicators v.
Philippine Coconut Authority,[20] it was held:
The rule of requiring exhaustion of administrative remedies before a party may seek judicial review, so strenuously
urged by the Solicitor General on behalf of respondent, has obviously no application here.The resolution in question
was issued by the PCA in the exercise of its rule- making or legislative power. However, only judicial review of
decisions of administrative agencies made in the exercise of their quasi-judicial function is subject to the exhaustion
doctrine.
Even assuming arguendo that the principle of exhaustion of administrative remedies apply in this case, the
records reveal that petitioners sufficiently complied with this requirement.Even during the drafting and deliberation
stages leading to the issuance of Memorandum Circular No. 13-6-2000, petitioners were able to register their
protests to the proposed billing guidelines. They submitted their respective position papers setting forth their
objections and submitting proposed schemes for the billing circular. [21] After the same was issued, petitioners wrote
successive letters dated July 3, 2000[22] and July 5, 2000,[23] asking for the suspension and reconsideration of the
so-called Billing Circular. These letters were not acted upon until October 6, 2000, when respondent NTC issued
the second assailed Memorandum implementing certain provisions of the Billing Circular. This was taken by
petitioners as a clear denial of the requests contained in their previous letters, thus prompting them to seek judicial
relief.
In like manner, the doctrine of primary jurisdiction applies only where the administrative agency exercises its
quasi-judicial or adjudicatory function. Thus, in cases involving specialized disputes, the practice has been to refer
the same to an administrative agency of special competence pursuant to the doctrine of primary jurisdiction. The
courts will not determine a controversy involving a question which is within the jurisdiction of the administrative
tribunal prior to the resolution of that question by the administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the special knowledge, experience and services of the
administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential to
comply with the premises of the regulatory statute administered. The objective of the doctrine of primary jurisdiction
is to guide a court in determining whether it should refrain from exercising its jurisdiction until after an administrative
agency has determined some question or some aspect of some question arising in the proceeding before the
court. It applies where the claim is originally cognizable in the courts and comes into play whenever enforcement of
the claim requires the resolution of issues which, under a regulatory scheme, has been placed within the special
competence of an administrative body; in such case, the judicial process is suspended pending referral of such
issues to the administrative body for its view.[24]
However, where what is assailed is the validity or constitutionality of a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to
pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative
agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial
courts.[25] This is within the scope of judicial power, which includes the authority of the courts to determine in an
appropriate action the validity of the acts of the political departments. [26] Judicial power includes the duty of the
courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the Government.[27]
In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000 and its Memorandum
dated October 6, 2000 was pursuant to its quasi-legislative or rule-making power. As such, petitioners were justified
in invoking the judicial power of the Regional Trial Court to assail the constitutionality and validity of the said
issuances. In Drilon v. Lim,[28] it was held:
We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this
authority being embraced in the general definition of the judicial power to determine what are the valid and binding
laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial
courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even
as the accused in a criminal action has the right to question in his defense the constitutionality of a law he is
charged with violating and of the proceedings taken against him, particularly as they contravene the Bill of
Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over
final judgments and orders of lower courts in all cases in which the constitutionality or validity of any treaty,
international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or
regulation is in question.[29]
In their complaint before the Regional Trial Court, petitioners averred that the Circular contravened Civil Code
provisions on sales and violated the constitutional prohibition against the deprivation of property without due
process of law. These are within the competence of the trial judge. Contrary to the finding of the Court of Appeals,
the issues raised in the complaint do not entail highly technical matters. Rather, what is required of the judge who
will resolve this issue is a basic familiarity with the workings of the cellular telephone service, including prepaid SIM
and call cards and this is judicially known to be within the knowledge of a good percentage of our population and
expertise in fundamental principles of civil law and the Constitution.
Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No. Q-00-42221. The Court of
Appeals erred in setting aside the orders of the trial court and in dismissing the case.
WHEREFORE, in view of the foregoing, the consolidated petitions are GRANTED. The decision of the Court of
Appeals in CA-G.R. SP No. 64274 dated October 9, 2001 and its Resolution dated January 10, 2002 are
REVERSED and SET ASIDE. The Order dated November 20, 2000 of the Regional Trial Court of Quezon City,
Branch 77, in Civil Case No. Q-00-42221 is REINSTATED. This case is REMANDED to the court a quo for
continuation of the proceedings.
SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS

G.R. No. 119761 August 29, 1996

The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent Court of
Appeals 1 affirming the 10th August 1994 decision and the 11th October 1994 resolution of the Court of Tax
Appeals 2 ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in
her capacity as Commissioner of Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark
registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then
Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential
Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and
'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies.
However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby
removing the said brands from the foreign brand category. Proof was also submitted to the Bureau (of Internal
Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local
brand." 3 Ad Valorem taxes were imposed on these brands, 4 at the following rates:
BRAND AD VALOREM TAX RATE
E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
 Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5
A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by the
legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law became
effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to
read; as follows:
Sec. 142. Cigars and Cigarettes. —
xxx xxx xxx
(c) Cigarettes packed by machine. — There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below based on the constructive manufacturer's
wholesale price or the actual manufacturer's wholesale price, whichever is higher:
(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent
(55%) or the exportation of which is not authorized by contract or otherwise, fifty-five (55%)
provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum
tax shall not be less than Three Pesos (P3.00) per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price
whichever is higher of existing brands of cigarettes, including the amounts intended to cover the
taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty centavos (P4.80)
per pack, the rate shall be twenty percent (20%). 7 (Emphasis supplied)
About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue
Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which expressed:
REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
July 1, 1993

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT: Reclassification of Cigarettes Subject to Excise Tax
TO: All Internal Revenue Officers and Others Concerned.
In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes which are
locally manufactured are appropriately considered as locally manufactured cigarettes bearing a
foreign brand, this Office is compelled to review the previous rulings on the matter.
Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:
On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%)
Provided, That this rate shall apply regardless of whether or not the right to use or
title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in
the current World Tobacco Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the
locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or
title to the foreign brand was sold or transferred by its owner to the local manufacturer. The brand
 must be originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand
is, however, not definitely determinable, ". . . the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern. . . ."
"HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco,
Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said directory as being
manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald
Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J.
Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds,
USA. "Champion" is registered in the said directory as being manufactured by (a) Commonwealth
Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e)
Haggar, Sudan; and (f) Tabac Reunies, Switzerland.
Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the
said brands are the real owner/s thereof, then it follows that the same shall be considered foreign
brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National
Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where
it cannot be established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made."
In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and
"CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby considered locally
manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via telefax a
copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On 15 July 1993,
Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco requested
for a review, reconsideration and recall of RMC 37-93. The request was denied on 29 July 1993. The
following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency
amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of
cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad
valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A.
No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED
AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No.
7654 and were therefore still classified as other locally manufactured cigarettes and taxed at 45%
or 20% as the case may be.
Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco
Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby
canceled for lack of legal basis.
Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency
tax assessment made and issued on petitioner in relation to the implementation of RMC No. 37-93.
SO ORDERED. 9
In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August
1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's Special
Thirteenth Division affirmed in all respects the assailed decision and resolution.
In the instant petition, the Solicitor General argues: That —
 I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF
INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE.
II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF
RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND
PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY
AND ENFORCEABILITY.
III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC
37-93 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY
MANUFACTURED CIGARETTES SIMILARLY SITUATED AS "HOPE," "MORE"
AND "CHAMPION" CIGARETTES.
V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING
"HOPE," "MORE" AND "CHAMPION" CIGARETTES BEFORE THE EFFECTIVITY
OF R.A. NO. 7654.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT
INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS
CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT. 10
In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus
become effective without any prior need for notice and hearing, nor publication, and that its issuance is not
discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective
implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such
authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR
may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances — a legislative rule and
an interpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, 11 the Court
expressed:
. . . a legislative rule is in the nature of subordinate legislation, designed to implement a primary
legislation by providing the details thereof . In the same way that laws must have the benefit of
public hearing, it is generally required that before a legislative rule is adopted there must be
hearing. In this connection, the Administrative Code of 1987 provides:
Public Participation. — If not otherwise required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford interested parties the opportunity to submit
their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have
been published in a newspaper of general circulation at least two (2) weeks before the first hearing
thereon.
(3) In case of opposition, the rules on contested cases shall be observed.
In addition such rule must be published. On the other hand, interpretative rules are designed to
provide guidelines to the law which the administrative agency is in charge of enforcing. 12
It should be understandable that when an administrative rule is merely interpretative in nature, its
applicability needs nothing further than its bare issuance for it gives no real consequence more than what
the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond
merely providing for the means that can facilitate or render least cumbersome the implementation of the
law but substantially adds to or increases the burden of those governed, it behooves the agency to accord
at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new
issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under which it has been issued,
convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process
the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as
amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium
More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands
and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory
provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so
classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury,"
"Premium More," and "Champion" cigarettes were in the category of locally manufactured
cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the
enactment of RA 7654, would have had no new tax rate consequence on private respondent's products.
Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of
the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be
issued. In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-
legislative authority. The due observance of the requirements of notice, of hearing, and of publication
should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas bearing on compliance with Internal Revenue
Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there
is due notice, due compliance therewith may not be reasonably expected. And most importantly,
their strict enforcement could possibly suffer from legal infirmity in the light of the constitutional
provision on "due process of law" and the essence of the Civil Code provision concerning effectivity
of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil
Code).
In order that there shall be a just enforcement of rules and regulations, in conformity with the basic
element of due process, the following procedures are hereby prescribed for the drafting, issuance
and implementation of the said Revenue Tax Issuances:
(1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit
Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue
Memorandum Orders bearing on internal revenue tax rules and regulations.
(2) Except when the law otherwise expressly provides, the aforesaid internal
revenue tax issuances shall not begin to be operative until after due notice thereof
may be fairly presumed.
Due notice of the said issuances may be fairly presumed only after the following
procedures have been taken;
xxx xxx xxx
(5) Strict compliance with the foregoing procedures is
enjoined. 13
Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and
comply with the above requirements before giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable.
Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on
equal footing both in privileges and liabilities. 14 Thus, all taxable articles or kinds of property of the same
class must be taxed at the same rate 15 and the tax must operate with the same force and effect in every
place where the subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes
and, unless petitioner would be willing to concede to the submission of private respondent that the circular
should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be
considered adjudicatory in nature and thus violative of due process following the Ang Tibay 16 doctrine, the
measure suffers from lack of uniformity of taxation. In its decision, the CTA has keenly noted that other
cigarettes bearing foreign brands have not been similarly included within the scope of the circular, such as
—
 1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
(a) "PALM TREE" is listed as manufactured by office of Monopoly, Korea (Exhibit
"R")
2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY
(a) "GOLDEN KEY" is listed being manufactured by United Tobacco, Pakistan
(Exhibit "S")
(b) "CANNON" is listed as being manufactured by Alpha Tobacco, Bangladesh
(Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia
(Exhibit "U")
(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks, Sweden
(Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia
(Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) "UNION" is listed as being manufactured by Sumatra Tobacco, Indonesia and
Brown and Williamson, USA (Exhibit "U-3")
(b) "WINNER" is listed as being manufactured by Alpha Tobacco, Bangladesh;
Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan;
Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-4"). 17
The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the
Committee on Ways and Means of the House of Representatives; viz:
THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have
specific information on other tobacco manufacturers. Now, there are other brands which are
similarly situated. They are locally manufactured bearing foreign brands. And may I enumerate to
you all these brands, which are also listed in the World Tobacco Directory . . . Why were these
brand not reclassified at 55 if your want to give a level playing filed to foreign manufacturers?
MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum Circular
that was supposed to come after RMC No. 37-93 which have really named specifically the list of
locally manufactured cigarettes bearing a foreign brand for excise tax purposes and includes all
these brands that you mentioned at 55 percent except that at that time, when we had to come up
with this, we were forced to study the brands of Hope, More and Champion because we were given
documents that would indicate the that these brands were actually being claimed or patented in
other countries because we went by Revenue Memorandum Circular 1488 and we wanted to give
some rationality to how it came about but we couldn't find the rationale there. And we really found
based on our own interpretation that the only test that is given by that existing law would be
registration in the World Tobacco Directory. So we came out with this proposed revenue
memorandum circular which we forwarded to the Secretary of Finance except that at that point in
time, we went by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that
on locally manufactured cigarettes which are currently classified and taxed at 55 percent. So we
were saying that when this law took effect in July 3 and if we are going to come up with this
revenue circular thereafter, then I think our action would really be subject to question but we feel
that . . . Memorandum Circular Number 37-93 would really cover even similarly situated
brands. And in fact, it was really because of the study, the short time that we were given to study
the matter that we could not include all the rest of the other brands that would have been really
classified as foreign brand if we went by the law itself. I am sure that by the reading of the law, you
would without that ruling by Commissioner Tan they would really have been included in the
definition or in the classification of foregoing brands. These brands that you referred to or just read
to us and in fact just for your information, we really came out with a proposed revenue
memorandum circular for those brands. (Emphasis supplied)
 (Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).
xxx xxx xxx
MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I felt that we . . . I
wanted to come up with a more extensive coverage and precisely why I asked that revenue
memorandum circular that would cover all those similarly situated would be prepared but because
of the lack of time and I came out with a study of RA 7654, it would not have been possible to really
come up with the reclassification or the proper classification of all brands that are listed there. .
. (emphasis supplied) (Exhibit "FF-2d," page IX-1)
xxx xxx xxx
HON. DIAZ. But did you not consider that there are similarly situated?
MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue Memorandum
Circular No. 37-93, the other brands came about the would have also clarified RMC 37-93 by I was
saying really because of the fact that I was just recently appointed and the lack of time, the period
that was allotted to us to come up with the right actions on the matter, we were really caught by the
July 3 deadline. But in fact, We have already prepared a revenue memorandum circular clarifying
with the other . . . does not yet, would have been a list of locally manufactured cigarettes bearing a
foreign brand for excise tax purposes which would include all the other brands that were mentioned
by the Honorable Chairman. (Emphasis supplied) (Exhibit "FF-2-d," par. IX-4). 18
All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective
administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED. No
costs.
SO ORDERED.

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. vs. INTERNATIONAL COMMUNICATION

CORPORATION
G.R. No. 135992. July 23, 2004

DECISION
The role of the telecommunications industry in Philippine progress and development cannot be understated.
Time was when the industry was dominated by a few -- an oligarchy of sorts where the elite made the decisions
and serfdom had no choice but acquiesce. Sensing the need to abrogate their dominion, the government
formulated policies in order to create an environment conducive to the entry of new players. Thus, in October 1990,
the National Telecommunications Development Plan 1991-2010 (NTDP) was formulated and came into being.
Designed by the Department of Transportation and Communications (DOTC), the NTDP provides for the framework
of government policies, objectives and strategies that will guide the industrys development for the next 20 years. As
expected, with it came the increase in the demand for telecommunications services, especially in the area of local
exchange carrier service (LECS).[1]
Concomitantly, the DOTC issued guidelines for the rationalization of local exchange telecommunications
service. In particular, the DOTC issued on September 30, 1991, Department Circular No. 91-260, with the purpose
of minimizing or eliminating situations wherein multiple operators provide local exchange service in a given area.
Pursuant thereto, the National Telecommunications Commission (NTC) was tasked to define the boundaries of
local exchange areas and authorize only one franchised local exchange carrier to provide local exchange service
within such areas.
Thereafter, on July 12, 1993, then President Fidel V. Ramos issued Executive Order No. 109 entitled Local
Exchange Carrier Service. Section 2 thereof provides that all existing International Gateway Facility (IGF)
operators[2] are required to provide local exchange carrier services in unserved and underserved areas, including
Metro Manila, thereby promoting universal access to basic telecommunications service.
The NTC promulgated Memorandum Circular No. 11-9-93 on September 17, 1993 implementing the
objectives of E.O. No. 109.[3] Section 3 of the Circular mandates existing IGF operators to file a petition for the
issuance of Certificate of Public Convenience and Necessity (CPCN) to install, operate and maintain local
exchange carrier services within two years from effectivity thereof. Section 4 further requires IGF operators to
provide a minimum of 300 local exchange lines per one international switch termination and a minimum of 300,000
local exchange lines within three years from grant of authority.
To cap the governments efforts, Republic Act No. 7925, otherwise known as the Public Telecommunications
Policy Act of the Philippines, was enacted on March 23, 1995. With regard to local exchange service, Section 10
thereof mandates an international carrier to comply with its obligation to provide local exchange service in unserved
or underserved areas within three years from the grant of authority as required by existing regulations. On
September 25, 1995, the NTC issued the Implementing Rules and Regulations for R.A. No. 7925 per its NTC MC
No. 8-9-95.
Taking advantage of the opportunities brought about by the passage of these laws, several IGF operators
applied for CPCN to install, operate and maintain local exchange carrier services in certain areas. Respondent
International Communication Corporation, now known as Bayan Telecommunications Corporation or
Bayantel,[4] applied for and was given by the NTC a Provisional Authority (PA) [5] on March 3, 1995, to install,
operate and provide local exchange service in Quezon City, Malabon and Valenzuela, Metro Manila, and the entire
Bicol region. Meanwhile, petitioner Telecommunications Technologies Philippines, Inc. (TTPI), as an affiliate of
petitioner Eastern Telecommunications Philippines, Inc. (ETPI), was granted by the NTC a PA on September 25,
1996, to install, operate and maintain a local exchange service in the Provinces of Batanes, Cagayan Valley,
Isabela, Kalinga-Apayao, Nueva Vizcaya, Ifugao, Quirino, the cities of Manila and Caloocan, and the Municipality of
Navotas, Metro Manila.
It appears, however, that before TTPI was able to fully accomplish its rollout obligation, ICC applied for and
was given a PA by the NTC on November 10, 1997, to install, operate and maintain a local exchange service in
Manila and Navotas,[6] two areas which were already covered by TTPI under its PA dated September 25, 1996.
Aggrieved, petitioners filed a petition for review with the Court of Appeals with application for a temporary
restraining order and a writ of preliminary injunction, docketed as CA-G.R. SP No. 46047, arguing that the NTC
committed grave abuse of discretion in granting a provisional authority to respondent ICC to operate in areas
already assigned to TTPI.
On April 30, 1998, the Court of Appeals dismissed[7] the petition for review on the ground that the NTC did not
commit any grave abuse of discretion in granting the PA to TTPI. It sustained the NTCs finding that ICC is legally
and financially competent and its network plan technically feasible. The Court of Appeals also ruled that there was
no violation of the equal protection clause because the PA granted to ICC and TTPI were given under different
situations and there is no point of comparison between the two.[8]
Hence, the present petition for review on certiorari, raising the following issues:
I

Whether or not the Honorable Court of Appeals committed a serious error of law in upholding the Order of the NTC
granting a PA to Respondent to operate LEC services in Manila and Navotas which are areas already assigned to
petitioner TTPI under a prior and subsisting PA.

II

Whether or not Petitioner is entitled to a Writ of Preliminary Injunction to restrain Respondent from installing LEC
services in the areas granted to it by the Order under review. [9]

In support thereof, petitioners posit the following arguments:

(1) The assignment to ICC of areas already allocated to TTPI violates the Service Area Scheme (SAS), which
is the guidepost of the laws and issuances governing local exchange service;
(2) ICC did not make any showing that an existing operator, TTPI in this case, failed to comply with the service
performance and technical standards prescribed by the NTC, and that the area is underserved, as required under
Section 23 of MC No. 11-9-93;
(3) The facts and figures cited by the NTC, i.e., ICCs alleged remarkable performance in fulfilling its rollout
obligation and the growth rate in the installation of telephone lines in Manila and Navotas, do not justify the grant of
the PA in favor of ICC, nor are they supported by the evidence on record as these were not presented during the
proceedings before the NTC;
(4) ICC did not comply with the requirement of prior consultation with the NTC before it filed its application, in
violation of Sections 3 and 3.1 of MC 11-9-93;
(5) ICC did not comply with Section 27 of MC 11-9-93 requiring that an escrow deposit be made equivalent to
20% and a performance bond equivalent to 10% of the investment required for the first two years of the project;
(6) ICC is not financially and technically capable of undertaking the project;
(7) The grant of a PA in favor of ICC to operate in areas covered by TTPI will render it difficult for the latter to
cross-subsidize its operations in less profitable areas covered by it and will threaten its viability to continue as a
local exchange operator.[10]
After a review of the records of this case, the Court finds no grave abuse of discretion committed by the Court
of Appeals in sustaining the NTCs grant of provisional authority to ICC.
The power of the NTC to grant a provisional authority has long been settled. As the regulatory agency of the
national government with jurisdiction over all telecommunications entities, it is clothed with authority and given
ample discretion to grant a provisional permit or authority. [11] It also has the authority to issue Certificates of Public
Convenience and Necessity (CPCN) for the installation, operation, and maintenance of communications facilities
and services, radio communications systems, telephone and telegraph systems, including the authority to
determine the areas of operations of applicants for telecommunications services. [12] In this regard, the NTC is
clothed with sufficient discretion to act on matters solely within its competence. [13]
In granting ICC the PA to operate a local exchange carrier service in the Manila and Navotas areas, the NTC
took into consideration ICCs financial and technical resources and found them to be adequate. The NTC also noted
ICCs performance in complying with its rollout obligations under the previous PA granted to it, thus:

With the proven track record of herein applicant as one of the pacesetters in carrying out its landlines commitment
in its assigned areas, applicant can best respond to public demand for faster installation of telephone lines in
Manila and Navotas.

The grant of this application is, therefore, a fitting recognition that should be accorded to any deserving applicant,
such as herein applicant ICC whose remarkable performance in terms of public service as mandated by Executive
Order 109 and Republic Act No. 7925 has persuaded this Commission to affix the stamp of its approval. [14]

The Court will not interfere with these findings of the NTC, as these are matters that are addressed to its
sound discretion, being the government agency entrusted with the regulation of activities coming under its special
and technical forte.[15] Moreover, the exercise of administrative discretion is a policy decision and a matter that can
best be discharged by the government agency concerned, and not by the courts. [16]
Petitioner insists compliance with the service area scheme (SAS) mandated by DOTC Dept. Circular No. 91-
260, to wit:

1. The National Telecommunications Commission (NTC) shall define the boundaries of local exchange
areas, and shall henceforth authorize only one franchised Local Exchange Carrier (LEC) to
provide LEC service within such areas.

The Court is not persuaded. Said department circular was issued by the DOTC in 1991, before the advent of E.O.
No. 109 and R.A. No. 7925. When E.O. No. 109 was promulgated in 1993, and R.A. No. 7925 enacted in 1995, the
service area scheme was noticeably omitted therefrom. Instead, E.O. No. 109 and R.A. No. 7925 adopted a policy
of healthy competition among the local exchange carrier service providers.
The need to formulate new policies is dictated by evolving goals and demands in telecommunications
services. Thus, E.O. No. 109 acknowledges that there is a need to promulgate new policy directives to meet the
targets of Government through the National Telecommunications Development Plan (NTDP) of the Department of
Transportation and Communications (DOTC), specifically: (1) to ensure the orderly development of the
telecommunications sector through the provision of service to all areas of the country; (2) to satisfy the unserviced
demand for telephones; and (3) to provide healthy competition among authorized service providers. Likewise, one
of the national policies and objectives of R.A. No. 7925 is to foster the improvement and expansion of
telecommunications services in the country through a healthy competitive environment, in which
telecommunications carriers are free to make business decisions and to interact with one another in providing
telecommunications services, with the end in view of encouraging their financial viability while maintaining
affordable rates.[17]
Recently, in Pilipino Telephone Corporation vs. NTC,[18] the Court had occasion to rule on a case akin to the
present dispute, involving the same respondent ICC, and the Pilipino Telephone Corporation (Piltel). In
the Piltel case, ICC applied for a provisional authority to operate a local exchange service in areas already covered
by Piltel, which includes Misamis Occidental, Zamboanga del Sur, Davao del Sur, South Cotabato and Saranggani.
Piltel opposed ICCs application but the NTC denied it, and granted ICCs application. The Court of Appeals
dismissed Piltels petition for review, and on certiorari before this Court, we affirmed the dismissal. The Court found
that the NTC did not commit any grave abuse of discretion when it granted the ICC a provisional authority to
operate in areas covered by Piltel. We held:

We will not disturb the factual findings of the NTC on the technical and financial capability of the ICC to undertake
the proposed project. We generally accord great weight and even finality to factual findings of administrative bodies
such as the NTC, if substantial evidence supports the findings as in this case. The exception to this rule is when the
administrative agency arbitrarily disregarded evidence before it or misapprehended evidence to such an extent as
to compel a contrary conclusion had it properly appreciated the evidence. PILTEL gravely failed to show that this
exception applies to the instant case. Moreover, the exercise of administrative discretion, such as the issuance of a
PA, is a policy decision and a matter that the NTC can best discharge, not the courts.

PILTEL contends that the NTC violated Section 23 of NTC Memorandum Circular No. 11-9-93, otherwise known as
the Implementing Guidelines on the Provisions of EO 109 which states:

Section 23. No other company or entity shall be authorized to provide local exchange service in areas where
the LECs comply with the relevant provisions of MTC MC No. 10-17-90 and NTC MC No. 10-16-90 and that the
local exchange service area is not underserved. (Emphasis supplied)

Section 23 of EO 109 does not categorically state that the issuance of a PA is exclusive to any telecommunications
company. Neither Congress nor the NTC can grant an exclusive franchise, certificate, or any other form of
authorization to operate a public utility. In Republic v. Express Telecommunications Co., the Court held that the
Constitution is quite emphatic that the operation of a public utility shall not be exclusive. Section 11, Article XII of
the Constitution provides:

Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise,
certificate or authorization be exclusive in character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. xxx (Emphasis supplied)

Thus, in Radio Communications of the Philippines, Inc. v. National Telecommunications Commission, the
Court ruled that the Constitution mandates that a franchise cannot be exclusive in nature.

Among the declared national policies in Republic Act No. 7925, otherwise known as the Public Telecommunications
Policy Act of the Philippines, is the healthy competition among telecommunications carriers, to wit:

Obviously, the need for a healthy competitive environment in telecommunications is sufficient impetus for the NTC
to consider all those applicants, who are willing to offer competition, develop the market and provide the
environment necessary for greater public service.

Furthermore, free competition in the industry may also provide the answer to a much-desired improvement in the
quality and delivery of this type of public utility, to improved technology, fast and handy mobil[e] service, and
reduced user dissatisfaction.

PILTELs contention that the NTC Order amounts to a confiscation of property without due process of law is
untenable. Confiscation means the seizure of private property by the government without compensation to the
owner. A franchise to operate a public utility is not an exclusive private property of the franchisee. Under the
Constitution, no franchisee can demand or acquire exclusivity in the operation of a public utility. Thus, a franchisee
of a public utility cannot complain of seizure or taking of property because of the issuance of another franchise to a
competitor. Every franchise, certificate or authority to operate a public utility is, by constitutional mandate, non-
exclusive. PILTEL cannot complain of a taking of an exclusive right that it does not own and which no franchisee
can ever own.

Likewise, PILTELs argument that the NTC Order violates PILTELs rights as a prior operator has no merit. The
Court resolved a similar question in Republic v. Republic Telephone Company, Inc. In striking down Retelcos
claim that it had a right to be protected in its investment as a franchise-holder and prior operator of a telephone
service in Malolos, Bulacan, the Court held:

RETELCOs foremost argument is that such operations and maintenance of the telephone system and solicitation of
subscribers by [petitioners] constituted an unfair and ruinous competition to the detriment of [RETELCO which] is a
grantee of both municipal and legislative franchises for the purpose. In effect, RETELCO pleads for protection from
the courts on the assumption that its franchises vested in it an exclusive right as prior operator. There is no clear
showing by RETELCO, however, that its franchises are of an exclusive character. xxx At any rate, it may very well
be pointed out as well that neither did the franchise of PLDT at the time of the controversy confer exclusive rights
upon PLDT in the operation of a telephone system. In fact, we have made it a matter of judicial notice that all
legislative franchises for the operation of a telephone system contain the following provision:

It is expressly provided that in the event the Philippine Government should desire to maintain and operate for itself
the system and enterprise herein authorized, the grantee shall surrender his franchise and will turn over to the
Government said system and all serviceable equipment therein, at cost, less reasonable depreciation.[19]

Similarly in this case, the grant of a PA to ICC to operate in areas covered by TTPI is not tainted with any
grave abuse of discretion as it was issued by the NTC after taking into account ICCs technical and financial
capabilities, and in keeping with the policy of healthy competition fostered by E.O. No. 109 and R.A. No. 7925.
In addition, Section 6 of R.A. No. 7925 specifically limits the DOTC from exercising any power that will tend to
influence or effect a review or a modification of the NTCs quasi-judicial functions, to wit:

Section 6. Responsibilities of and Limitations to Department Powers. -- The Department of Transportation and
Communications (Department) shall not exercise any power which will tend to influence or effect a review or a
modification of the Commissions quasi-judicial function.

The power of the NTC in granting or denying a provisional authority to operate a local exchange carrier service
is a quasi-judicial function,[20] a sphere in which the DOTC cannot intrude upon. If at all, the service area scheme
provided in DOTC Dept. Circular No. 91-260 is only one of the factors, but should not in any way, tie down the NTC
in its determination of the propriety of a grant of a provisional authority to a qualified applicant for local exchange
service.
True, NTC MC No. 11-9-93 requires prior consultation with the NTC of the proposed service areas. As
petitioners themselves argue, prior consultation allows the NTC to assess the impact of the proposed application on
the viability of the local exchange operator in the area desired by the would-be applicant and on the viability of the
entire telecommunications industry as well as rationalize the plans to minimize any adverse impact. [21] In this case,
prior consultation was substantially complied with and its purpose accomplished, when ICC filed its application and
the NTC was given the opportunity to assess ICCs viability to render local exchange service in the Manila and
Navotas areas, and its impact on the telecommunications industry.
It is also true that NTC MC No. 8-9-95 allows a duly enfranchised entity to maintain a local exchange network
if it is shown that an existing authorized local exchange operator fails to satisfy the demand for local exchange
service.[22] In this case, the NTC noted the increasing rate in the demand for local lines within the Manila and
Navotas areas, and in order for these areas to catch up with its neighboring cities, installation of lines must be sped
up.[23] This, in fact, is tantamount to a finding that the existing local exchange operator failed to meet the growing
demand for local lines.
ICCs technical and financial capabilities, as well as the growth rate in the number of lines in particular areas,
are matters within NTCs competence and should be accorded respect. The NTC is given wide latitude in the
evaluation of evidence and in the exercise of its adjudicative functions, and this includes the authority to take
judicial notice of facts within its special competence.[24]
TTPI anticipates that allowing ICC to enter its service areas will make it difficult for it to cross-subsidize its
operations in the less profitable areas. Such argument, however, is futile. The cross-subsidy approach is apparently
the governments response to the foreseen situation wherein given its policy of universal access, a local exchange
provider will find itself operating in areas where the demand and the publics capacity to subscribe will be lesser
than in other areas, making these areas more of a liability than an asset. Thus, Section 4 of E.O. No. 109 provides:

SEC. 4. Cross-Subsidy. Until universal access to basic telecommunications is achieved, and such
service is priced to reflect actual costs, local exchange service shall continue to be cross-
subsidized by other telecommunications services within the same company.

Meanwhile, NTC MC No. 8-9-95 provides:

ACCESS CHARGES
GENERAL

(a) Until the local exchange service is priced reflecting actual costs, the local exchange service shall be
cross-subsidized by other telecommunications services.

(c) The subsidy need by the LE service operator to earn a rate of return at parity with other segments of
telecommunications industry shall be charged against the international and domestic toll and
CMTS interconnect services.[25]

Both issuances allow a local exchange operator to cross-subsidize its operations from its other telecommunications
services, and not solely on the revenues derived from the operators local exchange service.
Notably, R.A. No. 7617, as amended by R.A. No. 7674, grants TTPI the legislative franchise to install, operate
and maintain telecommunications systems throughout the Philippines but not limited to the operations of local
exchange service or public switched network, public-calling stations, inter-exchange carrier or national toll
transmission, value-added or enhanced services intelligent networks, mobile or personal communications services,
international gateway facility, and paging services, among others. [26] From these services, TTPI has other sources
of revenue from which it may cross-subsidize its local exchange operations.
The Court, however, agrees with petitioners that the NTC erred when it failed to require ICC to make an
escrow deposit and a performance bond. Section 27 of NTC MC No. 11-9-93 specifically provides:

SEC. 27. Authorized public telecommunications carriers shall be required to deposit in escrow in a
reputable bank 20% of the investment required for the first two years of the implementation
of the proposed project.

In addition to escrow, the authorized public telecommunications carriers shall be required

to post a performance bond equivalent to 10% of the investment required for the first two
years of the approved project but not to exceed P500 Million. The performance bond shall
be forfeited in favor of the government in the event that the authorized PTC fail to comply
with the terms and conditions of the authority granted. (Emphases Ours)

The escrow deposit and the posting of a performance bond are required in each proposed and approved project of
a local exchange operator. Project refers to a planned undertaking. [27]ICCs project for local exchange service in the
Manila and Navotas areas is separate and distinct from its projects in other areas; hence, the NTC should have
directed ICC to submit such requirements. Evidently, the escrow deposit is required to ensure that there is available
money on hand to defray ICCs expenditures for its project, while the performance bond will answer for the faithful
compliance and performance of ICCs rollout obligation and to compensate the government for any damages
incurred in case of ICCs default. Without these, the government will be left holding an empty bag in the event ICC
reneges in its rollout obligation.
Section 27 of NTC MC No. 11-9-93 is silent as to whether the posting of an escrow deposit and performance
bond is a condition sine qua non for the grant of a provisional authority. While the provision uses the term shall,
said directive pertains to the NTC, which shall require the public telecommunications carrier to make such deposit
and posting. In any event, records show that as of May 20, 2004, ICC has been granted an extension of its
provisional authority up to November 10, 2006. [28] Records also show that ICC has already been providing local
exchange carrier service in the areas concerned, having installed 16,000 lines in the City of Manila, 12,000 of which
have already been subscribed, 624 lines in Caloocan City, all of which have been subscribed, while the roll-out plan
for facilities and provisioning in the City of Navotas is being finalized.[29] Hence, so as not to disrupt ICCs rollout
plan compliance, it would be more judicious for the Court to merely require ICC to comply with Section 27 of NTC
MC No. 11-9-93, within such period to be determined by the NTC.
Furthermore, it is well to stress that petitioner TTPI cannot claim any exclusive right to render
telecommunications service in areas which the NTC considers to be in need of additional providers. R.A. No. 7925
is quite emphatic on this score, viz.:

SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or
immunity granted under existing franchises, or may hereafter be granted, shall ipso factobecome part of previously
granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of
such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise, the life span of the franchise,
or the type of service authorized by the franchise. (Emphasis Ours)

More than anything else, public service should be the primordial objective of local exchange operators. The
entry of another provider in areas covered by TTPI should pose as a challenge for it to improve its quality of
service. Ultimately, it will be the public that will benefit. As pointed out in Republic of the Phils. vs. Rep.
Telephone Co, Inc.:[30]

Free competition in the industry may also provide the answer to a much-desired improvement in the quality and
delivery of this type of public utility, to improved technology, fast and handy mobil service, and reduced user
dissatisfaction. After all, neither PLDT nor any other public utility has a constitutional right to a monopoly position in
view of the Constitutional proscription that no franchise certificate or authorization shall be exclusive in character or
shall last longer than fifty (50) years (ibid., Section 11; Article XIV, Section 5, 1973 Constitution; Article XIV, Section
8, 1935 Constitution).

WHEREFORE, the petition for review on certiorari is PARTIALLY GRANTED. The Order of the National
Telecommunications Commission dated November 10, 1997 in NTC Case No. 96-195 is AFFIRMED with the
following modifications:
Respondent International Communication Corporation, in accordance with Section 27 of NTC MC No. 11-9-93,
is required to:

(1) Deposit in escrow in a reputable bank 20% of the investment required for the first two years of the
implementation of the proposed project; and

(2) Post a performance bond equivalent to 10% of the investment required for the first two years of the
approved project but not to exceed P500 Million.

within such period to be determined by the National Telecommunications Commission.

No pronouncement as to costs.
SO ORDERED.

STA. ROSA REALTY DEVELOPMENT CORPORATION vs. COURT OF APPEALS

G.R. No. 112526 October 12, 2001

The case before the Court is a petition for review on certiorari of the decision of the Court of Appeals 1 affirming the
decision of the Department of Agrarian Reform Adjudication Board2 (hereafter DARAB) ordering the compulsory
acquisition of petitioner's property under the Comprehensive Agrarian Reform Program (CARP).
Petitioner Sta. Rosa Realty Development Corporation (hereafter, SRRDC) was the registered owner of two parcels
of land, situated at Barangay Casile, Cabuyao, Laguna covered by TCT Nos. 81949 and 84891, with a total area of
254.6 hectares. According to petitioner, the parcels of land are watersheds, which provide clean potable water to
the Canlubang community, and that ninety (90) light industries are now located in the area. 3
Petitioner alleged that respondents usurped its rights over the property, thereby destroying the ecosystem.
Sometime in December 1985, respondents filed a civil case4 with the Regional Trial Court, Laguna, seeking an
easement of a right of way to and from Barangay Casile. By way of counterclaim, however, petitioner sought the
ejectment of private respondents.
In October 1986 to August 1987, petitioner filed with the Municipal Trial Court, Cabuyao, Laguna separate
complaints for forcible entry against respondents.5
After the filing of the ejectment cases, respondents petitioned the Department of Agrarian Reform (DAR) for the
compulsory acquisition of the SRRDC property under the CARP.
On August 11, 1989, the Municipal Agrarian Reform Officer (MARO) of Cabuyao, Laguna issued a notice of
coverage to petitioner and invited its officials or representatives to a conference on August 18, 1989. 6 During the
meeting, the following were present: representatives of petitioner, the Land Bank of the Philippines, PARCCOM,
PARO of Laguna, MARO of Laguna, the BARC Chairman of Barangay Casile and some potential farmer
beneficiaries, who are residents of Barangay Casile, Cabuyao, Laguna. It was the consensus and recommendation
of the assembly that the landholding of SRRDC be placed under compulsory acquisition.
On August 17, 1989, petitioner filed with the Municipal Agrarian Reform Office (MARO), Cabuyao, Laguna a
"Protest and Objection" to the compulsory acquisition of the property on the ground that the area was not
appropriate for agricultural purposes. The area was rugged in terrain with slopes of 18% and above and that the
occupants of the land were squatters, who were not entitled to any land as beneficiaries.7
On August 29, 1989, the farmer beneficiaries together with the BARC chairman answered the protest and objection
stating that the slope of the land is not 18% but only 5-10% and that the land is suitable and economically viable for
agricultural purposes, as evidenced by the Certification of the Department of Agriculture, municipality of Cabuyao,
Laguna.8
On September 8, 1989, MARO Belen dela Torre made a summary investigation report and forwarded the
Compulsory Acquisition Folder Indorsement (CAFI) to the Provincial Agrarian Reform Officer (hereafter, PARO). 9
On September 21, 1989, PARO Durante Ubeda forwarded his endorsement of the compulsory acquisition to the
Secretary of Agrarian Reform.
On November 23, 1989, Acting Director Eduardo C. Visperas of the Bureau of Land Acquisition and Development,
DAR forwarded two (2) Compulsory Acquisition Claim Folders covering the landholding of SRRDC, covered by TCT
Nos. T-81949 and T-84891 to the President, Land Bank of the Philippines for further review and evaluation.10
On December 12, 1989, Secretary of Agrarian Reform Miriam Defensor Santiago sent two (2) notices of
acquisition11 to petitioner, stating that petitioner's landholdings covered by TCT Nos. 81949 and 84891, containing
an area of 188.2858 and 58.5800 hectares, valued at P4,417,735.65 and P1,220,229.93, respectively, had been
placed under the Comprehensive Agrarian Reform Program.
On February 6, 1990, petitioner SRRDC in two letters12 separately addressed to Secretary Florencio B. Abad and
the Director, Bureau of Land Acquisition and Distribution, sent its formal protest, protesting not only the amount of
compensation offered by DAR for the property but also the two (2) notices of acquisition.
On March 17, 1990, Secretary Abad referred the case to the DARAB for summary proceedings to determine just
compensation under R. A. No. 6657, Section 16.
On March 23, 1990, the LBP returned the two (2) claim folders previously referred for review and evaluation to the
Director of BLAD mentioning its inability to value the SRRDC landholding due to some deficiencies.
On March 28, 1990, Executive Director Emmanuel S. Galvez wrote Land Bank President Deogracias Vistan to
forward the two (2) claim folders involving the property of SRRDC to the DARAB for it to conduct summary
proceedings to determine the just compensation for the land.
On April 6, 1990, petitioner sent a letter to the Land Bank of the Philippines stating that its property under the
aforesaid land titles were exempt from CARP coverage because they had been classified as watershed area and
were the subject of a pending petition for land conversion.
On May 10, 1990, Director Narciso Villapando of BLAD turned over the two (2) claim folders (CACF's) to the
Executive Director of the DAR Adjudication Board for proper administrative valuation. Acting on the CACF's, on
September 10, 1990, the Board promulgated a resolution asking the office of the Secretary of Agrarian Reform
(DAR) to first resolve two (2) issues before it proceeds with the summary land valuation proceedings.13
The issues that need to be threshed out were as follows: (1) whether the subject parcels of land fall within the
coverage of the Compulsory Acquisition Program of the CARP; and (2) whether the petition for land conversion of
the parcels of land may be granted.
On December 7, 1990, the Office of the Secretary, DAR, through the Undersecretary for Operations (Assistant
Secretary for Luzon Operations) and the Regional Director of Region IV, submitted a report answering the two
issues raised. According to them, firstly, by virtue of the issuance of the notice of coverage on August 11, 1989, and
notice of acquisition on December 12, 1989, the property is covered under compulsory acquisition. Secondly,
Administrative Order No. 1, Series of 1990, Section IV D also supports the DAR position on the coverage of the
said property. During the consideration of the case by the Board, there was no pending petition for land conversion
specifically concerning the parcels of land in question.
On February 19, 1991, the Board sent a notice of hearing to all the parties interested, setting the hearing for the
administrative valuation of the subject parcels of land on March 6, 1991. However, on February 22, 1991, Atty. Ma.
Elena P. Hernandez-Cueva, counsel for SRRDC, wrote the Board requesting for its assistance in the reconstruction
of the records of the case because the records could not be found as her co-counsel, Atty. Ricardo Blancaflor, who
originally handled the case for SRRDC and had possession of all the records of the case was on indefinite leave
and could not be contacted. The Board granted counsel's request and moved the hearing to April 4, 1991.
On March 18, 1991, SRRDC submitted a petition to the Board for the latter to resolve SRRDC's petition for
exemption from CARP coverage before any administrative valuation of their landholding could be had by the Board.
On April 4, 1991, the initial DARAB hearing of the case was held and subsequently, different dates of hearing were
set without objection from counsel of SRRDC. During the April 15, 1991 hearing, the subdivision plan of subject
property at Casile, Cabuyao, Laguna was submitted and marked as Exhibit "5" for SRRDC. At the hearing on April
23, 1991, the Land Bank asked for a period of one month to value the land in dispute.
At the hearing on April 23, 1991, certification from Deputy Zoning Administrator Generoso B. Opina was presented.
The certification issued on September 8, 1989, stated that the parcels of land subject of the case were classified as
"industrial Park" per Sanguniang Bayan Resolution No. 45-89 dated March 29, 1989.14
To avert any opportunity that the DARAB might distribute the lands to the farmer beneficiaries, on April 30, 1991,
petitioner filed a petition15 with DARAB to disqualify private respondents as beneficiaries. However, DARAB refused
to address the issue of beneficiaries.
In the meantime, on January 20, 1992, the Regional Trial Court, Laguna, Branch 24, rendered a decision, 16 finding
that private respondents illegally entered the SRRDC property, and ordered them evicted.
On July 11, 1991, DAR Secretary Benjamin T. Leong issued a memorandum directing the Land Bank of the
Philippines to open a trust account in favor of SRRDC, for P5,637,965.55, as valuation for the SRRDC property.
On December 19, 1991, DARAB promulgated a decision, the decretal portion of which reads:
"WHEREFORE, based on the foregoing premises, the Board hereby orders:
"1. The dismissal for lack of merit of the protest against the compulsory coverage of the landholdings of
Sta. Rosa Realty Development Corporation (Transfer Certificates of Title Nos. 81949 and 84891 with an
area of 254.766 hectares) in Barangay Casile, Municipality of Cabuyao, Province of Laguna under the
Comprehensive Agrarian Reform Program is hereby affirmed;
"2. The Land Bank of the Philippines (LBP) to pay Sta. Rosa Realty Development Corporation the amount
of Seven Million Eight Hundred Forty-One Thousand, Nine Hundred Ninety Seven Pesos and Sixty-Four
centavos (P7,841,997.64) for its landholdings covered by the two (2) Transfer Certificates of Title
mentioned above. Should there be a rejection of the payment tendered, to open, if none has yet been
made, a trust account for said amount in the name of Sta. Rosa Realty Development Corporation;
"3. The Register of Deeds of the Province of Laguna to cancel with dispatch Transfer certificate of Title
Nos. 84891 and 81949 and new one be issued in the name of the Republic of the Philippines, free from
liens and encumbrances;
"4 The Department of Environment and Natural Resources either through its Provincial Office in Laguna or
the Regional Office, Region IV, to conduct a final segregation survey on the lands covered by Transfer
 certificate of Title Nos. 84891 and 81949 so the same can be transferred by the Register of Deeds to the
name of the Republic of the Philippines;
"5. The Regional Office of the Department of Agrarian Reform through its Municipal and Provincial Agrarian
Reform Office to take immediate possession on the said landholding after Title shall have been transferred
to the name of the Republic of the Philippines, and distribute the same to the immediate issuance of
Emancipation Patents to the farmer-beneficiaries as determined by the Municipal Agrarian Reform Office of
Cabuyao, Laguna."17
On January 20, 1992, the Regional Trial Court, Laguna, Branch 24, rendered a decision in Civil Case No. B-
233318ruling that respondents were builders in bad faith.
On February 6, 1992, petitioner filed with the Court of Appeals a petition for review of the DARAB decision.19 On
November 5, 1993, the Court of Appeals promulgated a decision affirming the decision of DARAB. The decretal
portion of the Court of Appeals decision reads:
"WHEREFORE, premises considered, the DARAB decision dated September 19, 1991 is AFFIRMED,
without prejudice to petitioner Sta. Rosa Realty Development Corporation ventilating its case with the
Special Agrarian Court on the issue of just compensation." 20Hence, this petition.21
On December 15, 1993, the Court issued a Resolution which reads:
"G. R. Nos. 112526 (Sta. Rosa Realty Development Corporation vs. Court of Appeals, et. al.) – Considering
the compliance, dated December 13, 1993, filed by counsel for petitioner, with the resolution of December
8, 1993 which required petitioner to post a cash bond or surety bond in the amount of P1,500,000.00 Pesos
before issuing a temporary restraining order prayed for, manifesting that it has posted a CASH BOND in
the same amount with the Cashier of the Court as evidenced by the attached official receipt no. 315519,
the Court resolved to ISSUE the Temporary Retraining Order prayed for.
"The Court therefore, resolved to restrain: (a) the Department of Agrarian Reform Adjudication Board from
enforcing its decision dated December 19, 1991 in DARAB Case No. JC-R-IV-LAG-0001, which was
affirmed by the Court of Appeals in a Decision dated November 5, 1993, and which ordered, among others,
the Regional Office of the Department of Agrarian Reform through its Municipal and Provincial Reform
Office to take immediate possession of the landholding in dispute after title shall have been transferred to
the name of the Republic of the Philippines and to distribute the same through the immediate issuance of
Emancipation Patents to the farmer-beneficiaries as determined by the Municipal Agrarian Officer of
Cabuyao, Laguna, (b) The Department of Agrarian Reform and/or the Department of Agrarian Reform
Adjudication Board, and all persons acting for and in their behalf and under their authority from entering the
properties involved in this case and from introducing permanent infrastructures thereon; and (c) the private
respondents from further clearing the said properties of their green cover by the cutting or burning of trees
and other vegetation, effective today until further orders from this Court."22
The main issue raised is whether the property in question is covered by CARP despite the fact that the entire
property formed part of a watershed area prior to the enactment of R. A. No. 6657.
Under Republic Act No. 6657, there are two modes of acquisition of private land: compulsory and voluntary. In the
case at bar, the Department of Agrarian Reform sought the compulsory acquisition of subject property under R. A.
No. 6657, Section 16, to wit:
"Sec. 16. Procedure for Acquisition of Private Lands. – For purposes of acquisition of private lands, the
following procedures shall be followed:
a.) After having identified the land, the landowners and the beneficiaries, the DAR shall send its
notice to acquire the land to the owners thereof, by personal delivery or registered mail, and post
the same in a conspicuous place in the municipal building and barangay hall of the place where the
property is located. Said notice shall contain the offer of the DAR to pay corresponding value in
accordance with the valuation set forth in Sections 17, 18, and other pertinent provisions hereof.
b.) Within thirty (30) days from the date of the receipt of written notice by personal delivery or
registered mail, the landowner, his administrator or representative shall inform the DAR of his
acceptance or rejection of the offer.
c.) If the landowner accepts the offer of the DAR, the LBP shall pay the landowner the purchase
price of the land within thirty (30) days after he executes and delivers a deed of transfer in favor of
the government and other muniments of title.
 d.) In case of rejection or failure to reply, the DAR shall conduct summary administrative
proceedings to determine the compensation for the land requiring the landowner, the LBP and
other interested parties to submit fifteen (15) days from receipt of the notice. After the expiration of
the above period, the matter is deemed submitted for decision. The DAR shall decide the case
within thirty (30) days after it is submitted for decision.
e.) Upon receipt by the landowner of the corresponding payment, or, in case of rejection or no
response from the landowner, upon the deposit with an accessible bank designated by the DAR of
the compensation in cash or in LBP bonds in accordance with this act, the DAR shall make
immediate possession of the land and shall request the proper Register of Deeds to issue Transfer
Certificate of Titles (TCT) in the name of the Republic of the Philippines. The DAR shall thereafter
proceed with the redistribution of the land to the qualified beneficiaries.
f.) Any party who disagrees with the decision may bring the matter to the court 23 of proper
jurisdiction for final determination of just compensation.
In compulsory acquisition of private lands, the landholding, the landowners and farmer beneficiaries must first be
identified. After identification, the DAR shall send a notice of acquisition to the landowner, by personal delivery or
registered mail, and post it in a conspicuous place in the municipal building and barangay hall of the place where
the property is located.
Within thirty (30) days from receipt of the notice of acquisition, the landowner, his administrator or representative
shall inform the DAR of his acceptance or rejection of the offer.
If the landowner accepts, he executes and delivers a deed of transfer in favor of the government and surrenders
the certificate of title. Within thirty (30) days from the execution of the deed of transfer, the Land Bank of the
Philippines (LBP) pays the owner the purchase price. If the landowner accepts, he executes and delivers a deed of
transfer in favor of the government and surrenders the certificate of title. Within thirty days from the execution of the
deed of transfer, the Land Bank of the Philippines (LBP) pays the owner the purchase price. If the landowner
rejects the DAR's offer or fails to make a reply, the DAR conducts summary administrative proceedings to
determine just compensation for the land. The landowner, the LBP representative and other interested parties may
submit evidence on just compensation within fifteen days from notice. Within thirty days from submission, the DAR
shall decide the case and inform the owner of its decision and the amount of just compensation.
Upon receipt by the owner of the corresponding payment, or, in case of rejection or lack of response from the latter,
the DAR shall deposit the compensation in cash or in LBP bonds with an accessible bank. The DAR shall
immediately take possession of the land and cause the issuance of a transfer certificate of title in the name of the
Republic of the Philippines. The land shall then be redistributed to the farmer beneficiaries. Any party may question
the decision of the DAR in the special agrarian courts (provisionally the Supreme Court designated branches of the
regional trial court as special agrarian courts) for final determination of just compensation.
The DAR has made compulsory acquisition the priority mode of land acquisition to hasten the implementation of the
Comprehensive Agrarian Reform Program (CARP). Under Sec. 16 of the CARL, the first step in compulsory
acquisition is the identification of the land, the landowners and the farmer beneficiaries. However, the law is silent
on how the identification process shall be made. To fill this gap, on July 26, 1989, the DAR issued Administrative
Order No. 12, series of 1989, which set the operating procedure in the identification of such lands. The procedure is
as follows:
A. The Municipal Agrarian Reform Officer (MARO), with the assistance of the pertinent Barangay Agrarian
Reform Committee (BARC), shall:
1. Update the masterlist of all agricultural lands covered under the CARP in his area of responsibility; the
masterlist should include such information as required under the attached CARP masterlist form which
shall include the name of the landowner, landholding area, TCT/OCT number, and tax declaration number.
2. Prepare the Compulsory Acquisition Case Folder (CACF) for each title (OCT/TCT) or landholding
covered under Phase I and II of the CARP except those for which the landowners have already filed
applications to avail of other modes of land acquisition. A case folder shall contain the following duly
accomplished forms:
a) CARP CA Form 1—MARO investigation report
b) CARP CA Form No 2 – Summary investigation report findings and evaluation
c) CARP CA Form 3—Applicant's Information sheet
 d) CARP CA Form 4 – Beneficiaries undertaking
e) CARP CA Form 5 – Transmittal report to the PARO
The MARO/BARC shall certify that all information contained in the above-mentioned forms have been
examined and verified by him and that the same are true and correct.
3. Send notice of coverage and a letter of invitation to a conference/meeting to the landowner covered by
the Compulsory Case Acquisition Folder. Invitations to the said conference meeting shall also be sent to
the prospective farmer-beneficiaries, the BARC representatives, the Land Bank of the Philippines (LBP)
representative, and the other interested parties to discuss the inputs to the valuation of the property.
He shall discuss the MARO/BARC investigation report and solicit the views, objection, agreements or
suggestions of the participants thereon. The landowner shall also ask to indicate his retention area. The
minutes of the meeting shall be signed by all participants in the conference and shall form an integral part
of the CACF.
4. Submit all completed case folders to the Provincial Agrarian Reform Officer (PARO).
B. The PARO shall:
1. Ensure the individual case folders are forwarded to him by his MAROs.
2. Immediately upon receipt of a case folder, compute the valuation of the land in accordance with A.O. No.
6, series of 1988. The valuation worksheet and the related CACF valuation forms shall be duly certified
correct by the PARO and all the personnel who participated in the accomplishment of these forms.
3. In all cases, the PARO may validate the report of the MARO through ocular inspection and verification of
the property. This ocular inspection and verification shall be mandatory when the computed value exceeds
P500,000 per estate.
4. Upon determination of the valuation, forward the case folder, together with the duly accomplished
valuation forms and his recommendations, to the Central Office.
The LBP representative and the MARO concerned shall be furnished a copy each of his report.
C. DAR Central Office, specifically through the Bureau of Land Acquisition and Distribution (BLAD), shall:
1. Within three days from receipt of the case folder from the PARO, review, evaluate and determine the
final land valuation of the property covered by the case folder. A summary review and evaluation report
shall be prepared and duly certified by the BLAD Director and the personnel directly participating in the
review and final valuation.
2. Prepare, for the signature of the Secretary or her duly authorized representative, a notice of acquisition
(CARP Form 8) for the subject property. Serve the notice to the landowner personally or through registered
mail within three days from its approval. The notice shall include among others, the area subject of
compulsory acquisition, and the amount of just compensation offered by DAR.
3. Should the landowner accept the DAR's offered value, the BLAD shall prepare and submit to the
Secretary for approval the order of acquisition. However, in case of rejection or non-reply, the DAR
Adjudication Board (DARAB) shall conduct a summary administrative hearing to determine just
compensation, in accordance with the procedures provided under Administrative Order No. 13, series of
1989. Immediately upon receipt of the DARAB's decision on just compensation, the BLAD shall prepare
and submit to the Secretary for approval the required order of acquisition.
4. Upon the landowner's receipt of payment, in case of acceptance, or upon deposit of payment in the
designated bank, in case of rejection or non-response, the Secretary shall immediately direct the pertinent
Register of Deeds to issue the corresponding Transfer Certificate of Title (TCT) in the name of the Republic
of the Philippines. Once the property is transferred, the DAR, through the PARO, shall take possession of
the land for redistribution to qualified beneficiaries."
Administrative Order No. 12, Series of 1989 requires that the Municipal Agrarian Reform Officer (MARO) keep an
updated master list of all agricultural lands under the CARP in his area of responsibility containing all the required
information. The MARO prepares a Compulsory Acquisition Case Folder (CACF) for each title covered by CARP.
The MARO then sends the landowner a "Notice of Coverage" and a "letter of invitation" to a "conference/ meeting"
over the land covered by the CACF. He also sends invitations to the prospective farmer-beneficiaries, the
representatives of the Barangay Agrarian Reform Committee (BARC), the Land Bank of the Philippines (LBP) and
other interested parties to discuss the inputs to the valuation of the property and solicit views, suggestions,
objections or agreements of the parties. At the meeting, the landowner is asked to indicate his retention area.
The MARO shall make a report of the case to the Provincial Agrarian Reform Officer (PARO) who shall complete
the valuation of the land. Ocular inspection and verification of the property by the PARO shall be mandatory when
the computed value of the estate exceeds P500,000.00. Upon determination of the valuation, the PARO shall
forward all papers together with his recommendation to the Central Office of the DAR. The DAR Central Office,
specifically, the Bureau of Land Acquisition and Distribution (BLAD) shall prepare, on the signature of the Secretary
or his duly authorized representative, a notice of acquisition of the subject property. From this point, the provisions
of R. A. No. 6657, Section 16 shall apply.
For a valid implementation of the CARP Program, two notices are required: (1) the notice of coverage and letter of
invitation to a preliminary conference sent to the landowner, the representative of the BARC, LBP, farmer
beneficiaries and other interested parties pursuant to DAR A. O. No. 12, series of 1989; and (2) the notice of
acquisition sent to the landowner under Section 16 of the CARL.
The importance of the first notice, that is, the notice of coverage and the letter of invitation to a conference, and its
actual conduct cannot be understated. They are steps designed to comply with the requirements of administrative
due process. The implementation of the CARL is an exercise of the State's police power and the power of eminent
domain. To the extent that the CARL prescribes retention limits to the landowners, there is an exercise of police
power for the regulation of private property in accordance with the Constitution. But where, to carry out such
regulation, the owners are deprived of lands they own in excess of the maximum area allowed, there is also a
taking under the power of eminent domain. The taking contemplated is not mere limitation of the use of the land.
What is required is the surrender of the title to and physical possession of the excess and all beneficial rights
accruing to the owner in favor of the farmer beneficiary.
In the case at bar, DAR has executed the taking of the property in question. However, payment of just
compensation was not in accordance with the procedural requirement. The law required payment in cash or LBP
bonds, not by trust account as was done by DAR.
In Association of Small Landowners in the Philippines v. Secretary of Agrarian Reform, we held that "The CARP
Law, for its part, conditions the transfer of possession and ownership of the land to the government on receipt of
the landowner of the corresponding payment or the deposit by the DAR of the compensation in cash or LBP bonds
with an accessible bank. Until then, title also remains with the landowner. No outright change of ownership is
contemplated either."24
Consequently, petitioner questioned before the Court of Appeals DARAB's decision ordering the compulsory
acquisition of petitioner's property.25 Here, petitioner pressed the question of whether the property was a
watershed, not covered by CARP.
Article 67 of the Water Code of the Philippines (P. D. No. 1067) provides:
"Art. 67. Any watershed or any area of land adjacent to any surface water or overlying any ground water
may be declared by the Department of Natural resources as a protected area. Rules and Regulations may
be promulgated by such Department to prohibit or control such activities by the owners or occupants
thereof within the protected area which may damage or cause the deterioration of the surface water or
ground water or interfere with the investigation, use, control, protection, management or administration of
such waters."
Watersheds may be defined as "an area drained by a river and its tributaries and enclosed by a boundary or divide
which separates it from adjacent watersheds." Watersheds generally are outside the commerce of man, so why
was the Casile property titled in the name of SRRDC? The answer is simple. At the time of the titling, the
Department of Agriculture and Natural Resources had not declared the property as watershed area. The parcels of
land in Barangay Casile were declared as "PARK" by a Zoning Ordinance adopted by the municipality of Cabuyao
in 1979, as certified by the Housing and Land Use Regulatory Board. On January 5, 1994, the Sangguniang Bayan
of Cabuyao, Laguna issued a Resolution26 voiding the zoning classification of the land at Barangay Casile as Park
and declaring that the land is now classified as agricultural land.
The authority of the municipality of Cabuyao, Laguna to issue zoning classification is an exercise of its police
power, not the power of eminent domain. "A zoning ordinance is defined as a local city or municipal legislation
which logically arranges, prescribes, defines and apportions a given political subdivision into specific land uses as
present and future projection of needs."27
In Natalia Realty, Inc. v. Department of Agrarian Reform28 we held that lands classified as non-agricultural prior to
the effectivity of the CARL may not be compulsorily acquired for distribution to farmer beneficiaries.
However, more than the classification of the subject land as PARK is the fact that subsequent studies and survey
showed that the parcels of land in question form a vital part of a watershed area. 29
Now, petitioner has offered to prove that the land in dispute is a "watershed or part of the protected area for
watershed purposes." Ecological balances and environmental disasters in our day and age seem to be
interconnected. Property developers and tillers of the land must be aware of this deadly combination. In the case at
bar, DAR included the disputed parcels of land for compulsory acquisition simply because the land was allegedly
devoted to agriculture and was titled to SRRDC, hence, private and alienable land that may be subject to CARP.
However, the scenario has changed, after an in-depth study, survey and reassessment. We cannot ignore the fact
that the disputed parcels of land form a vital part of an area that need to be protected for watershed purposes. In a
report of the Ecosystems Research and Development Bureau (ERDB), a research arm of the DENR, regarding the
environmental assessment of the Casile and Kabanga-an river watersheds, they concluded that:
"The Casile barangay covered by CLOA in question is situated in the heartland of both watersheds.
Considering the barangays proximity to the Matangtubig waterworks, the activities of the farmers which are
in conflict with proper soil and water conservation practices jeopardize and endanger the vital waterworks.
Degradation of the land would have double edge detrimental effects. On the Casile side this would mean
direct siltation of the Mangumit river which drains to the water impounding reservoir below. On the
Kabanga-an side, this would mean destruction of forest covers which acts as recharged areas of the
Matang Tubig springs. Considering that the people have little if no direct interest in the protection of the
Matang Tubig structures they couldn't care less even if it would be destroyed.
The Casile and Kabanga-an watersheds can be considered a most vital life support system to thousands of
inhabitants directly and indirectly affected by it. From these watersheds come the natural God-given
precious resource – water. x x x x x
Clearing and tilling of the lands are totally inconsistent with sound watershed management. More so, the
introduction of earth disturbing activities like road building and erection of permanent infrastructures.
Unless the pernicious agricultural activities of the Casile farmers are immediately stopped, it would not be
long before these watersheds would cease to be of value. The impact of watershed degredation threatens
the livelihood of thousands of people dependent upon it. Toward this, we hope that an acceptable
comprehensive watershed development policy and program be immediately formulated and implemented
before the irreversible damage finally happens.
Hence, the following are recommended:
7.2 The Casile farmers should be relocated and given financial assistance.
7.3 Declaration of the two watersheds as critical and in need of immediate rehabilitation.
7.4 A comprehensive and detailed watershed management plan and program be formulated and
implemented by the Canlubang Estate in coordination with pertinent government agencies." 30
The ERDB report was prepared by a composite team headed by Dr. Emilio Rosario, the ERDB Director, who holds
a doctorate degree in water resources from U.P. Los Banos in 1987; Dr. Medel Limsuan, who obtained his
doctorate degree in watershed management from Colorado University (US) in 1989; and Dr. Antonio M. Dano, who
obtained his doctorate degree in Soil and Water management Conservation from U.P. Los Banos in 1993.
Also, DENR Secretary Angel Alcala submitted a Memorandum for the President dated September 7, 1993 (Subject:
PFVR HWI Ref.: 933103 Presidential Instructions on the Protection of Watersheds of the Canlubang Estates at
Barrio Casile, Cabuyao, Laguna) which reads:
"It is the opinion of this office that the area in question must be maintained for watershed purposes for
ecological and environmental considerations, among others. Although the 88 families who are the
proposed CARP beneficiaries will be affected, it is important that a larger view of the situation be taken as
one should also consider the adverse effect on thousands of residents downstream if the watershed will not
be protected and maintained for watershed purposes.
"The foregoing considered, it is recommended that if possible, an alternate area be allocated for the
affected farmers, and that the Canlubang Estates be mandated to protect and maintain the area in question
as a permanent watershed reserved."31
The definition does not exactly depict the complexities of a watershed. The most important product of a watershed
is water which is one of the most important human necessity. The protection of watersheds ensures an adequate
supply of water for future generations and the control of flashfloods that not only damage property but cause loss of
lives. Protection of watersheds is an "intergenerational responsibility" that needs to be answered now.
Another factor that needs to be mentioned is the fact that during the DARAB hearing, petitioner presented proof
that the Casile property has slopes of 18% and over, which exempted the land from the coverage of CARL. R. A.
No. 6657, Section 10, provides:
"Section 10. Exemptions and Exclusions. – Lands actually, directly and exclusively used and found to be
necessary for parks, wildlife, forest reserves, reforestration, fish sanctuaries and breeding grounds,
watersheds and mangroves, national defense, school sites and campuses including experimental farm
stations operated by public or private schools for educational purposes, seeds and seedlings research and
pilot production centers, church sites and convents appurtenent thereto, communal burial grounds and
cemeteries, penal colonies and penal farms actually worked by the inmates, government and private
research and quarantine centers, and all lands with eighteen percent (18%) slope and over, except those
already developed shall be exempt from coverage of this Act."
Hence, during the hearing at DARAB, there was proof showing that the disputed parcels of land may be excluded
from the compulsory acquisition coverage of CARP because of its very high slopes.
To resolve the issue as to the true nature of the parcels of land involved in the case at bar, the Court directs the
DARAB to conduct a re-evaluation of the issue.
IN VIEW WHEREOF, the Court SETS ASIDE the decision of the Court of Appeals in CA-G. R. SP No. 27234.
In lieu thereof, the Court REMANDS the case to the DARAB for re-evaluation and determination of the nature of the
parcels of land involved to resolve the issue of its coverage by the Comprehensive Land Reform Program.
In the meantime, the effects of the CLOAs issued by the DAR to supposed farmer beneficiaries shall continue to be
stayed by the temporary restraining order issued on December 15, 1993, which shall remain in effect until final
decision on the case.
No costs.
SO ORDERED.

CABRAL vs. COURT OF APPEALS

G.R. No. 101974 July 12, 2001

DECISION
On January 16, 1990, petitioner Victoria Cabral filed a petition before the Barangay Agrarian Reform Council
(BARC) for the cancellation of the Emancipation Patents and Torrens Titles issued in favor of private
respondents. The patents and titles covered portions of the property owned and registered in the name of
petitioner.
Petitioner alleged therein that she was the registered owner of several parcels of land covered by Original
Certificate of Title (OCT) No. 0-1670 of the Registry of Deeds of Bulacan,[1] among which is a parcel of land
described therein as Lot 4 of Plan Psu-164390. The petition further averred that as early as July 1973, petitioner
applied with the Department of Agrarian Reform (DAR) for the reclassification or conversion of the land for
residential, commercial or industrial purposes. The application for conversion, however, was not acted
upon. Instead, on April 25, 1988, Emancipation Patents, and, thereafter, Transfer Certificates of Title, were issued
in favor of private respondents.
Petitioner sought the cancellation of the TCTs on the grounds that: petitioner had a pending application for
conversion and reclassification; the lots covered by the emancipation patents included areas not actually tilled by
private respondents; private respondents had illegally transferred their rights over the parcels of land covered by
the emancipation patents; private respondents are deemed to have abandoned their rights over the properties; and
the subject property was taken without just compensation.
On January 19, 1990, petitioner filed with the DAR itself another petition for the cancellation of the same
Emancipation Patents and Torrens Titles.
 On January 29, 1990, petitioner received a letter from the Municipal Agrarian Reform Office (MARO) of Sta.
Maria, Bulacan, stating, among other things, that in order that your petition be given due process by this Office,
your petition will be forwarded to the legal section of this office for legal action.
On February 11, 1990, Regional Director Eligio Pacis issued an order dismissing the petition [2] for cancellation
of Emancipation Patents, thus:
WHEREFORE, premises considered, this Office hereby orders the DISMISSAL of the petition of Victoria P. Cabral
for lack of legal and factual basis likewise, this office request[s] that the annotation of the notice of lis pendens on
the original copies of Emancipation Patents issued to petitioners covering the subject landholdings be CANCELLED
by the Office of the Register of Deeds concerned.
SO ORDERED.[3]
The Regional Director likewise denied petitioners motion for reconsideration dated July 11,
1990. Consequently, petitioner filed a petition for certiorari in the Court of Appeals questioning the jurisdiction of the
Regional Director and claiming denial of due process. On January 8, 1991, the appellate court dismissed the
petition for lack of merit. Petitioners motion for reconsideration was likewise denied, prompting petitioner to turn to
this Court for relief, alleging that:
(a) THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE DAR REGIONAL
DIRECTOR OF REGION III ACTED WITH JURISDICTION WHEN IT TOOK COGNIZANCE OF AND
RESOLVED THE CONVERSION APPLICATION AND/OR CANCELLATION OF CLT/EP PETITION
OF PETITIONER-APPELLANT;
(b) THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT OUTSIDE OF THE
BARANGAY AGRARIAN REFORM COMMITTEE (BARC), IT IS THE DEPARTMENT OF AGRARIAN
REFORM ADJUDICATION BOARD (DARAB) THAT HAS JURISDICTION OVER AGRARIAN
REFORM CASES, DISPUTES OR CONTROVERSIES;
(c) THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER WAS NOT
DENIED DUE PROCESS AS ALLEGEDLY SHE LOST HER OPPORTUNITY TO BE HEARD AFTER
THE JUNE 27, 1990 HEARING.[4]-
On April 21, 1993, petitioner filed with this Court an urgent motion for the issuance of a temporary restraining
order. Petitioner alleged that private respondent Gregoria Adolfo had conveyed the land awarded to her to the
Aqualand Development Corporation and the Sta. Rita Steel Resources Corporation. These corporations, in turn,
x x x converted the parcel of land from agricultural to commercial and industrial and have constructed high adobe
stone walls[,] commenced the construction of a steel finishing plant and other structures for the manufacture of
steel products[,] and are putting in place more installations to complete all facilities necessary for their business. As
a matter of fact, they have just applied for a building permit for the construction of a two (2) storey office
condominium/business office building. xxx[5]
In a Resolution dated May 17, 1993, the Court issued the temporary restraining order prayed for. The Court
enjoined Sta. Rita Steel Resources and Aqualand Development Corporation, its officers, agents, representatives
and/or persons acting in their place or stead from continuing the construction of building and the like on the
landholding of petitioner, pending final resolution of the petition. [6]
Petitioner contended before the Court of Appeals that jurisdiction over the case pertained to the Department of
Agrarian Reform Agrarian Board (DARAB), not the Regional Director. Addressing this argument, the Court of
Appeals held in its Decision:
Relevant to the issue raised is Ministry Administrative Order No. 2-85, Series of 1985, effective July 24, 1985
(Annex 2, Comment) which empowers all DAR Regional Directors to hear and decide cases which include the
issuance of Decisions/Resolutions, the recall and cancellation of Certificates of Land Transfers (CLTs) if such is the
necessary consequence of the facts and circumstances of the case.
A later directive, DAR Memo Cir. No. 5, Series of 1987 (Annex 3, Comment), clothed the Regional Directors as
titular regional heads, with powers to hear and resolve cases involving lands in their respective jurisdiction in order
to achieve the expanded and comprehensive agrarian reform program of the present administration, and to tackle
the issue of huge number and increasing backlog or unresolved cases in the DAR Central Office.
Additionally, a memorandum dated September 14, 1987 (Annex 4, Comment) addressed to the Director, Bureau of
Land Acquisition Development, by the then Director, Bureau of Agrarian Legal Assistance, contains a decisive
opinion regarding the question on order of cancellation issued by the Regional Director, DAR Region III, to wit:
The Regional Director is now authorized to hear/investigate and hereby resolve cases arising from the
implementation of CLT pursuant to PD 27 and amendatory and related decrees and letter of instructions, rules and
regulations as well as conflict of claim in landed estates and resettlement areas and such other lands as have been
placed under the administration and disposition of this Department. [7]
In its Resolution dated September 17, 1991, the Court of Appeals also made reference to Section 13 of
Executive Order No. 129-A, which authorized the delegation of the adjudication of agrarian reform cases to regional
offices. It further cited certain provisions of the DARAB Revised Rules of Procedure providing for, among others,
delegated jurisdiction, and concluded that:
x x x the Regional Director cannot be faulted with assuming jurisdiction over the case, considering that the powers
and functions of the DARAB may be delegated to the regional office x x x.
While it is true that the jurisdiction is vested with the DARAB, the Regional Director took cognizance of the instant
case invoking the delegated powers and functions upon him.[8]
Evidently, the DARAB, in the Court of Appeals view, had concurrent jurisdiction with the Regional Director
over the case. Petitioner, on the other hand, maintains that the jurisdiction of the DARAB is exclusive of the DAR
Regional Director.
Petitioner is correct. Whatever jurisdiction the Regional Director may have had over the cancellation of
emancipation patents, it lost with the passage of subsequent laws.
Section 17 of Executive Order No. 229 (Providing for the Mechanism for the Implementation of the
Comprehensive Agrarian Reform Program)[9] granted DAR quasi-judicial powers to adjudicate agrarian reform
matters, thus:
Section 50. Quasi-Judicial Powers of the DAR. The DAR is hereby vested with quasi-judicial powers to determine
and adjudicate agrarian reform matters, and shall have exclusive original jurisdiction over all matters involving
implementation of agrarian reform, except those falling under the exclusive jurisdiction of the Department of
Agriculture (DA) and the Department of Environment and Natural Resources (DENR).
xxx
Executive Order No. 129-A (Modifying Executive Order No. 129 Reorganizing and Strengthening Department
of Agrarian Reform and for other purposes)[10] subsequently provided for the creation of the Agrarian Reform
Adjudicatory Board, granting it the powers and functions with respect to the adjudication of agrarian reform cases:
SECTION 13. Agrarian Reform Adjudication Board. There is hereby created an Agrarian Reform Adjudication
Board under the Office of the Secretary. The Board shall be composed of the Secretary as Chairman, two (2)
Undersecretaries as may be designated by the Secretary, the Assistant Secretary for Legal Affairs, and three (3)
others to be appointed by the President upon recommendation of the Secretary as members. A Secretariat shall be
constituted to support the Board. The Board shall assume the powers and functions with respect to the adjudication
of agrarian reform cases under Executive Order No. 229 and this Executive Order. These powers and functions
may be delegated to the regional office of the Department in accordance with the rules and regulations
promulgated by the Board.
Congress substantially reiterated Section 17 of E.O. No. 229 in Republic Act No. 6657, otherwise known as
the Comprehensive Agrarian Law of 1988 (CARL).[11] Section 50 thereof states:
Section 50. Quasi-Judicial Powers of the DAR. The DAR is hereby vested with primary jurisdiction to determine and
adjudicate agrarian reform matters and shall have exclusive original jurisdiction over all matters involving the
implementation of agrarian reform, except those falling under the exclusive jurisdiction of the Department of
Agriculture (DA) and the Department of Environment and Natural Resources (DENR).
xxx
CARL took effect on June 15, 1988, after it was published in two newspapers of general circulation.
In order to achieve a just, expeditious and inexpensive determination of every action or proceeding before it,
the DAR is mandated to adopt a uniform rule of procedure (Second par., Section 50, R.A. No. 6657), which is, at
present, the DARAB Revised Rules.[12] The Rules were promulgated on December 26, 1988.
The provisions of Rule II (Jurisdiction of the Adjudication Board) of the Revised Rules read:
SECTION 1. Primary, Original and Appellate Jurisdiction. The Agrarian Reform Adjudication Board shall have
primary jurisdiction, both original and appellate, to determine and adjudicate all agrarian disputes, cases,
controversies, and matters or incidents involving the implementation of the Comprehensive Agrarian Reform
Program under Republic Act No. 6657, Executive Order Nos. 229, 228 and 129-A, Republic Act No. 3844 as
amended by Republic Act No. 6389, Presidential Decree No. 27 and other agrarian laws and their implementing
rules and regulations.
Specifically, such jurisdiction shall extend over but not be limited to the following:
a) Cases involving the rights and obligations of persons engaged in the cultivation and use of agricultural land
covered by the Comprehensive Agrarian Reform Program (CARP) and other agrarian laws;
b) Cases involving the valuation of land, and determination and payment of just compensation, fixing and collection
of lease rentals, disturbance compensation, amortization payments, and similar disputes concerning the function of
the Land Bank;
c) Cases involving the annulment or cancellation of orders or decisions of DAR officials other than the Secretary,
lease contracts or deeds of sale or their amendments under the administration and disposition of the DAR and LBP;
d) Cases arising from, or connected with membership or representation in compact farms, farmers cooperatives
and other registered farmers associations or organizations, related to land covered by the CARP and other agrarian
laws;
e) Cases involving the sale, alienation, mortgage, foreclosure, pre-emption and redemption of agricultural lands
under the coverage of the CARP or other agrarian laws;
f) Cases involving the issuance of Certificate of Land Transfer (CLT), Certificate of Land Ownership Award (CLOA)
and Emancipation Patent (EP) and the administrative correction thereof;
g) And such other agrarian cases, disputes, matters or concerns referred to it by the Secretary of the DAR.
Provided, however, that matters involving strictly the administrative implementation of the CARP and other agrarian
laws and regulations, shall be the exclusive prerogative of and cognizable by the Secretary of the DAR.
SECTION 2. Delegated Jurisdiction. The Regional Agrarian Reform Adjudicators (RARAD) and the Provincial
Agrarian Reform Adjudicators (PARAD) are empowered and authorized to receive, hear, determine and adjudicate
all agrarian cases and disputes, and incidents in connection therewith, arising within their respective territorial
jurisdiction.
SECTION 3. Functional Relationships. The Board shall exercise functional supervision over the RARADs; and the
PARADs. For administrative purposes, however, the RARADs and the PARADs are deemed to form part of the
DAR Regional Office where they are stationed, and as such, shall be given administrative support by their
respective Regional and Provincial offices, in terms of office space, personal services, equipment and supply, and
other facilities.
SECTION 4. Role of the RARAD. The RARAD shall be the Executive Adjudicator in his region directly responsible
to the Board. As such, he shall coordinate and monitor the work of the PARADs in his region and see to it that their
dockets do not remain clogged. He shall receive, hear, and adjudicate the following cases:
a) Cases that cannot be handled by the PARAD on account of inhibition or disqualification;
b) Cases brought directly before him which for some cogent reason, cannot be properly handled by the PARAD
concerned;
c) Cases of such complexity and sensitivity that the decision thereof would constitute an important precedent
affecting regional or national interest; and
d) Such other cases which the Board may assign to him.
SECTION 5. Appellate Jurisdiction. The Board shall have exclusive appellate jurisdiction to review, reverse, modify,
alter or affirm resolutions, orders, decisions, and other dispositions of its RARAD and PARAD.
SECTION 6. Enforcement Powers. The members of the Board and its RARADs and PARADs are empowered to
summon witnesses, administer oaths, take testimony, require submission of reports, compel production of books
and documents and answers to interrogatories, and to issue subpoena, subpoena duces tecum, writs of
possession, writs of execution and other writs to enforce its orders and decisions thru sheriffs or duly deputized
officers.
For such purpose, whenever necessary, it may call upon the police and military authorities for assistance in the
enforcement and execution of its decisions, orders, writs and other processes.
In Department of Agrarian Reform Adjudication Board vs. Court of Appeals,[13] this Court observed that:
x x x the DARs exclusive original jurisdiction [as set forth in Section 50 of the CARL] is exercised through
hierarchically arranged agencies, namely, the DARAB, RARAD and PARAD. The latter two exercise delegated
authority, while the first exercises appellate jurisdiction over resolutions, orders, decisions and other dispositions of
the RARAD and the PARAD.
On the other hand, Executive Order 129-A, in Section 24 thereof, defines the functions of the Regional Offices
as follows:
SECTION 24. Regional Offices. The Department shall have twelve (12) Regional Offices. Each Regional Office
shall be headed by a Regional Director who shall be assisted by an Assistant Regional Director for Operations and
an Assistant Regional Director for Administration.
The Regional Offices shall be responsible for the implementation of laws, policies, plans, programs, projects, rules
and regulations of the Department in its administrative region. For such purposes, it shall have the following
functions.
a) Prepare and submit plans and programs for the regions on:
1) Land acquisition and distribution;
2) Information and education;
3) Land use management and land development;
4) Agrarian reform beneficiaries development;
b) Provide technical assistance to Provincial Offices and Municipal Agrarian Reform Offices in the
implementation of approved plans and programs;
c) Conduct operations research and evaluation of agrarian reform implementation within the region;
d) Coordinate with other government and private agencies and farmers and farm workers organizations at
the regional level, to carry out programs/projects for the general welfare of agrarian reform
beneficiaries;
e) Maintain an information system in coordination with the established monitoring system;
f) Review and evaluate reports and other documents submitted by the Provincial Offices and Municipal
Agrarian Reform Offices and agrarian reform clientele;
g) Submit periodic feedback as may be necessary in the service of the Departments clientele.
In addition, the Revised Administrative Code of 1987, in Chapter 5 (Field Offices), Book IV (The Executive
Branch) thereof, provides:
SEC. 26. Functions of a Regional Office. (1) A regional office shall:
(a) Implement laws, policies, plans, programs, rules and regulations of the department or agency in the regional
area;
(b) Provide economical, efficient and effective service to the people in the area;
(c) Coordinate with regional offices of other departments, bureaus and agencies in the area;
(d) Coordinate with local government units in the area; and
(e) Perform such other functions as may be provided by law.
(2) x x x
SEC. 27. Duties of a Regional Director. The Regional Director shall:
(1) Implement laws, policies, rules and regulations within the responsibility of the agency;
(2) Implement agency programs in the region;
(3) Exercise the management functions of planning, organizing, directing and controlling;
(4) Appoint personnel to positions in the first level and casual and seasonal employees; and exercise disciplinary
actions over them in accordance with the Civil Service Law;
(5) Approve sick, vacation and maternity leaves of absence with or without pay, for a period not beyond one year;
(6) Prepare and submit budget proposals for the region to the central office, administer the budget of the regional
office, authorize disbursement of funds pursuant to approved financial and work programs, and administer the
budget control machinery in the region;
(7) Approve requisition for supplies, materials and equipment, as well as books and periodicals, and other items for
the region, in accordance with the approved supply procurement program;
(8) Negotiate and enter into contracts for services or furnishing supplies, materials and equipment to the regional
office involving an amount not exceeding fifty thousand pesos (P50,000.00) within a given quarter, provided that
authority in excess of fifty thousand pesos (P50,000.00) may be further authorized by the proper department or
agency head;
(9) Approve claims for benefits under existing laws;
(10) Approve requests for overtime services;
(11) Promote coordination among regional offices, and between his regional office and local government units in
the region;
(12) Provide housekeeping services for the regional office;
(13) Approve application of personnel for permission to teach, exercise a profession, or engage in business outside
of office hours, in accordance with standards and guidelines of the Civil Service Commission;
(14) Issue travel vouchers authorizing employees to travel on official days within the region for a period not
exceeding thirty days;
(15) Approve attendance of personnel in conferences, seminars, and non-degree training programs within the
region;
(16) Authorize the allocation of funds to provincial/district offices; and
(17) Perform such other duties and functions as may be provided by law or further delegated by the head of agency
or other proper authorities concerned.
Title XI of Book IV of the same Code, dealing specifically with the Department of Agrarian Reform, provides:
SEC. 18. Regional Office. The Regional Office shall be responsible for supporting the field units and supervising
program implementation of the Department within the region. It shall:
(1) Implement laws, policies, plans, rules and regulations of the Department in the regional area;
(2) Develop and implement a regional personnel management program;
(3) Prepare, submit, execute and control the budget of the region;
(4) Prepare and properly maintain books of accounts;
(5) Pay salaries and wages and other approved vouchers;
(6) Provide administrative services to the regional and provincial offices;
(7) Prepare and submit plans and programs for the region on:
a. land tenure development
b. information and education
c. land use management and land development
d. legal services
e. agrarian reform beneficiaries development
(8) Provide technical assistance to the provincial offices and agrarian reform teams in the implementation of
approved plans and programs;
(9) Extend effective legal assistance, advice or service to agrarian reform beneficiaries;
(10) Conduct operations research and evaluation of agrarian reform program implementation within the region;
(11) Coordinate with other government and private agencies and farmer organizations at the Regional level through
the Agrarian Reform Coordinating Council, to carry out programs/projects for the general welfare of the agrarian
reform beneficiaries;
(12) Coordinate para-legal services;
(13) Maintain a data-based information system in coordination with the established monitoring system;
(14) Review documents submitted by the Provincial and Team Offices or by the clientele;
(15) Submit periodic feedback and recommend policy changes and/or modification of procedures on program
implementation; and
(16) Perform such other functions as may be necessary in the service of the clientele.
The foregoing provisions were already in effect when petitioner filed her petition in the BARC in 1990. And it is
amply clear from these provisions that the function of the Regional Office concerns the implementation of agrarian
reform laws while that of the DARAB/RARAD/PARAD is the adjudication of agrarian reform cases.
The first is essentially executive. It pertains to the enforcement and administration of the laws, carrying them
into practical operation and enforcing their due observance.[14] Thus, the Regional Director is primarily tasked with
"[i]mplement[ing] laws, policies, rules and regulations within the responsibility of the agency, as well as the agency
program in the region.[15]
The second is judicial in nature, involving as it does the determination of rights and obligations of the
parties. To aid the DARAB in the exercise of this function, the Rules grant the Board and Adjudicators the powers
to issue subpoenas[16] and injunctions,[17] to cite and punish for contempt,[18] and to order the execution of its orders
and decision,[19] among other powers. The Rules also contain very specific provisions to ensure the orderly
procedure before the DARAB, RARADs and PARADs. These provisions govern the commencement of actions,
venue and cause of action,[20] the service of pleadings,[21] the presentation of
[22] [23] [24] [25]
evidence, motions, appeals and judicial review. Notable are provisions intended to prevent multiplicity of
suits such as the rules on one suit for one cause of action, [26] the joinder of causes of action,[27] and the assignment
of all incidents of a case to the Adjudicator to whom the case is assigned.[28] No such powers were granted or
provisions adopted when the purported delegation was made to the Regional Director or since. The DARAB Rules
grant broader powers to the Board and the Adjudicators and contain more detailed rules on procedure than those
provided by the orders, circulars, memoranda and opinions cited by the Court of Appeals delegating jurisdiction to
the Regional Director.
The Court of Appeals has underscored the fact that Section 13 of E.O. No. 129-A authorizes the DARAB to
delegate its powers and functions to the regional office in accordance with the rules and regulations promulgated by
the Board. The authority purportedly provides additional justification for the Regional Offices jurisdiction over the
case. Precisely, however, the DARAB, through its Revised Rules, has delegated such powers and functions to the
RARADs and the PARADs, which, under Section 3 of the Rules, are deemed to form part of the DAR Regional
Office where they are stationed.
It is evident from the foregoing that the DAR, like most administrative agencies, is granted with a fusion of
governmental powers, in this case, a commingling of the quasi-judicial and the executive. The growing complexity
of modern life, the multiplication of the subjects of governmental regulation and the increased difficulty of
administering the laws have impelled this constantly growing tendency toward such delegation. [29]
In delegating these powers, it would hardly seem practical to allow a duplication of functions between
agencies. Duplication results in confusion between the various agencies upon whom these powers are reposed,
and in the public that the agencies are supposed to serve. It divides the agencies resources and prevents them
from devoting their energy to similarly important tasks. The intention to avoid this very situation is evident in the
various laws distinct delineation of the functions of the DARAB/RARAD/PARAD and the DAR Regional
Office. Accordingly, the Court must reject the theory of concurrent jurisdiction between the former and the latter. We
hold that the DAR Regional Office has no jurisdiction over the subject case.
In view of this conclusion, we need not resolve the issue of deprivation of due process allegedly suffered by
petitioner in the proceedings before the Regional Director.
WHEREFORE, the petition is given DUE COURSE and GRANTED. The Decision and Resolution of the Court
of Appeals is REVERSED and SET ASIDE. The restraining order issued per this Courts Resolution dated May 17,
1993 is hereby made permanent.
SO ORDERED.
SORIANO vs. LAGUARDIA
G.R. No. 164785 April 29, 2009

SORIANO vs. MTRCB

G.R. No. 165636 April 29, 2009

DECISION
In these two petitions for certiorari and prohibition under Rule 65, petitioner Eliseo F. Soriano seeks to nullify and
set aside an order and a decision of the Movie and Television Review and Classification Board (MTRCB) in
connection with certain utterances he made in his television show, Ang Dating Daan.
Facts of the Case
On August 10, 2004, at around 10:00 p.m., petitioner, as host of the program Ang Dating Daan, aired on UNTV 37,
made the following remarks:
Lehitimong anak ng demonyo; sinungaling;
Gago ka talaga Michael, masahol ka pa sa putang babae o di ba. Yung putang babae ang gumagana lang doon
yung ibaba, [dito] kay Michael ang gumagana ang itaas, o di ba! O, masahol pa sa putang babae yan. Sabi ng lola
ko masahol pa sa putang babae yan. Sobra ang kasinungalingan ng mga demonyong ito.1 x x x
Two days after, before the MTRCB, separate but almost identical affidavit-complaints were lodged by Jessie L.
Galapon and seven other private respondents, all members of the Iglesia ni Cristo (INC), 2 against petitioner in
connection with the above broadcast. Respondent Michael M. Sandoval, who felt directly alluded to in petitioner’s
remark, was then a minister of INC and a regular host of the TV program Ang Tamang Daan. 3 Forthwith, the
MTRCB sent petitioner a notice of the hearing on August 16, 2004 in relation to the alleged use of some cuss
words in the August 10, 2004 episode of Ang Dating Daan.4
After a preliminary conference in which petitioner appeared, the MTRCB, by Order of August 16, 2004, preventively
suspended the showing of Ang Dating Daan program for 20 days, in accordance with Section 3(d) of Presidential
Decree No. (PD) 1986, creating the MTRCB, in relation to Sec. 3, Chapter XIII of the 2004 Implementing Rules and
Regulations (IRR) of PD 1986 and Sec. 7, Rule VII of the MTRCB Rules of Procedure.5 The same order also set
the case for preliminary investigation.
The following day, petitioner sought reconsideration of the preventive suspension order, praying that Chairperson
Consoliza P. Laguardia and two other members of the adjudication board recuse themselves from hearing the
case.6 Two days after, however, petitioner sought to withdraw7 his motion for reconsideration, followed by the filing
with this Court of a petition for certiorari and prohibition,8 docketed as G.R. No. 164785, to nullify the preventive
suspension order thus issued.
On September 27, 2004, in Adm. Case No. 01-04, the MTRCB issued a decision, disposing as follows:
WHEREFORE, in view of all the foregoing, a Decision is hereby rendered, finding respondent Soriano liable for his
utterances and thereby imposing on him a penalty of three (3) months suspension from his program, "Ang Dating
Daan".
Co-respondents Joselito Mallari, Luzviminda Cruz and UNTV Channel 37 and its owner, PBC, are hereby
exonerated for lack of evidence.
SO ORDERED.9
Petitioner then filed this petition for certiorari and prohibition with prayer for injunctive relief, docketed as G.R. No.
165636.
In a Resolution dated April 4, 2005, the Court consolidated G.R. No. 164785 with G.R. No. 165636.
In G.R. No. 164785, petitioner raises the following issues:
THE ORDER OF PREVENTIVE SUSPENSION PROMULGATED BY RESPONDENT [MTRCB] DATED 16
AUGUST 2004 AGAINST THE TELEVISION PROGRAM ANG DATING DAAN x x x IS NULL AND VOID FOR
BEING ISSUED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION
(A) BY REASON THAT THE [IRR] IS INVALID INSOFAR AS IT PROVIDES FOR THE ISSUANCE OF
PREVENTIVE SUSPENSION ORDERS;
 (B) BY REASON OF LACK OF DUE HEARING IN THE CASE AT BENCH;
(C) FOR BEING VIOLATIVE OF EQUAL PROTECTION UNDER THE LAW;
(D) FOR BEING VIOLATIVE OF FREEDOM OF RELIGION; AND
(E) FOR BEING VIOLATIVE OF FREEDOM OF SPEECH AND EXPRESSION.10
In G.R. No. 165636, petitioner relies on the following grounds:
SECTION 3(C) OF [PD] 1986, IS PATENTLY UNCONSTITUTIONAL AND ENACTED WITHOUT OR IN EXCESS
OF JURISDICTION x x x CONSIDERING THAT:
I
SECTION 3(C) OF [PD] 1986, AS APPLIED TO PETITIONER, UNDULY INFRINGES ON THE CONSTITUTIONAL
GUARANTEE OF FREEDOM OF RELIGION, SPEECH, AND EXPRESSION AS IT PARTAKES OF THE NATURE
OF A SUBSEQUENT PUNISHMENT CURTAILING THE SAME; CONSEQUENTLY, THE IMPLEMENTING RULES
AND REGULATIONS, RULES OF PROCEDURE, AND OFFICIAL ACTS OF THE MTRCB PURSUANT THERETO,
I.E. DECISION DATED 27 SEPTEMBER 2004 AND ORDER DATED 19 OCTOBER 2004, ARE LIKEWISE
CONSTITUTIONALLY INFIRM AS APPLIED IN THE CASE AT BENCH;
II
SECTION 3(C) OF [PD] 1986, AS APPLIED TO PETITIONER, UNDULY INFRINGES ON THE CONSTITUTIONAL
GUARANTEE OF DUE PROCESS OF LAW AND EQUAL PROTECTION UNDER THE LAW; CONSEQUENTLY,
THE [IRR], RULES OF PROCEDURE, AND OFFICIAL ACTS OF THE MTRCB PURSUANT THERETO, I.E.,
DECISION DATED 27 SEPTEMBER 2004 AND ORDER DATED 19 OCTOBER 2004, ARE LIKEWISE
CONSTITUTIONALLY INFIRM AS APPLIED IN THE CASE AT BENCH; AND
III
[PD] 1986 IS NOT COMPLETE IN ITSELF AND DOES NOT PROVIDE FOR A SUFFICIENT STANDARD FOR ITS
IMPLEMENTATION THEREBY RESULTING IN AN UNDUE DELEGATION OF LEGISLATIVE POWER BY
REASON THAT IT DOES NOT PROVIDE FOR THE PENALTIES FOR VIOLATIONS OF ITS PROVISIONS.
CONSEQUENTLY, THE [IRR], RULES OF PROCEDURE, AND OFFICIAL ACTS OF THE MTRCB PURSUANT
THERETO, I.E. DECISION DATED 27 SEPTEMBER 2004 AND ORDER DATED 19 OCTOBER 2004, ARE
LIKEWISE CONSTITUTIONALLY INFIRM AS APPLIED IN THE CASE AT BENCH11
G.R. No. 164785
We shall first dispose of the issues in G.R. No. 164785, regarding the assailed order of preventive suspension,
although its implementability had already been overtaken and veritably been rendered moot by the equally assailed
September 27, 2004 decision.
It is petitioner’s threshold posture that the preventive suspension imposed against him and the relevant IRR
provision authorizing it are invalid inasmuch as PD 1986 does not expressly authorize the MTRCB to issue
preventive suspension.
Petitioner’s contention is untenable.
Administrative agencies have powers and functions which may be administrative, investigatory, regulatory, quasi-
legislative, or quasi-judicial, or a mix of the five, as may be conferred by the Constitution or by statute. 12 They have
in fine only such powers or authority as are granted or delegated, expressly or impliedly, by law.13 And in
determining whether an agency has certain powers, the inquiry should be from the law itself. But once ascertained
as existing, the authority given should be liberally construed.14
A perusal of the MTRCB’s basic mandate under PD 1986 reveals the possession by the agency of the authority,
albeit impliedly, to issue the challenged order of preventive suspension. And this authority stems naturally from, and
is necessary for the exercise of, its power of regulation and supervision.
Sec. 3 of PD 1986 pertinently provides the following:
Section 3. Powers and Functions.—The BOARD shall have the following functions, powers and duties:
xxxx
c) To approve or disapprove, delete objectionable portions from and/or prohibit the x x x production, x x x exhibition
and/or television broadcast of the motion pictures, television programs and publicity materials subject of the
preceding paragraph, which, in the judgment of the board applying contemporary Filipino cultural values as
standard, are objectionable for being immoral, indecent, contrary to law and/or good customs, injurious to the
prestige of the Republic of the Philippines or its people, or with a dangerous tendency to encourage the
commission of violence or of wrong or crime such as but not limited to:
xxxx
vi) Those which are libelous or defamatory to the good name and reputation of any person, whether living or dead;
xxxx
(d) To supervise, regulate, and grant, deny or cancel, permits for the x x x production, copying, distribution, sale,
lease, exhibition, and/or television broadcast of all motion pictures, television programs and publicity materials, to
the end that no such pictures, programs and materials as are determined by the BOARD to be objectionable in
accordance with paragraph (c) hereof shall be x x x produced, copied, reproduced, distributed, sold, leased,
exhibited and/or broadcast by television;
xxxx
k) To exercise such powers and functions as may be necessary or incidental to the attainment of the purposes and
objectives of this Act x x x. (Emphasis added.)
The issuance of a preventive suspension comes well within the scope of the MTRCB’s authority and functions
expressly set forth in PD 1986, more particularly under its Sec. 3(d), as quoted above, which empowers the
MTRCB to "supervise, regulate, and grant, deny or cancel, permits for the x x x exhibition, and/or television
broadcast of all motion pictures, television programs and publicity materials, to the end that no such pictures,
programs and materials as are determined by the BOARD to be objectionable in accordance with paragraph (c)
hereof shall be x x x exhibited and/or broadcast by television."
Surely, the power to issue preventive suspension forms part of the MTRCB’s express regulatory and supervisory
statutory mandate and its investigatory and disciplinary authority subsumed in or implied from such mandate. Any
other construal would render its power to regulate, supervise, or discipline illusory.
Preventive suspension, it ought to be noted, is not a penalty by itself, being merely a preliminary step in an
administrative investigation.15 And the power to discipline and impose penalties, if granted, carries with it the power
to investigate administrative complaints and, during such investigation, to preventively suspend the person subject
of the complaint.16
To reiterate, preventive suspension authority of the MTRCB springs from its powers conferred under PD 1986. The
MTRCB did not, as petitioner insinuates, empower itself to impose preventive suspension through the medium of
the IRR of PD 1986. It is true that the matter of imposing preventive suspension is embodied only in the IRR of PD
1986. Sec. 3, Chapter XIII of the IRR provides:
Sec. 3. PREVENTION SUSPENSION ORDER.––Any time during the pendency of the case, and in order to prevent
or stop further violations or for the interest and welfare of the public, the Chairman of the Board may issue a
Preventive Suspension Order mandating the preventive x x x suspension of the permit/permits involved, and/or
closure of the x x x television network, cable TV station x x x provided that the temporary/preventive order thus
issued shall have a life of not more than twenty (20) days from the date of issuance.
But the mere absence of a provision on preventive suspension in PD 1986, without more, would not work to deprive
the MTRCB a basic disciplinary tool, such as preventive suspension. Recall that the MTRCB is expressly
empowered by statute to regulate and supervise television programs to obviate the exhibition or broadcast of,
among others, indecent or immoral materials and to impose sanctions for violations and, corollarily, to prevent
further violations as it investigates. Contrary to petitioner’s assertion, the aforequoted Sec. 3 of the IRR neither
amended PD 1986 nor extended the effect of the law. Neither did the MTRCB, by imposing the assailed preventive
suspension, outrun its authority under the law. Far from it. The preventive suspension was actually done in
furtherance of the law, imposed pursuant, to repeat, to the MTRCB’s duty of regulating or supervising television
programs, pending a determination of whether or not there has actually been a violation. In the final analysis, Sec.
3, Chapter XIII of the 2004 IRR merely formalized a power which PD 1986 bestowed, albeit impliedly, on MTRCB.
Sec. 3(c) and (d) of PD 1986 finds application to the present case, sufficient to authorize the MTRCB’s assailed
action. Petitioner’s restrictive reading of PD 1986, limiting the MTRCB to functions within the literal confines of the
law, would give the agency little leeway to operate, stifling and rendering it inutile, when Sec. 3(k) of PD 1986
clearly intends to grant the MTRCB a wide room for flexibility in its operation. Sec. 3(k), we reiterate, provides, "To
exercise such powers and functions as may be necessary or incidental to the attainment of the purposes and
objectives of this Act x x x." Indeed, the power to impose preventive suspension is one of the implied powers of
MTRCB. As distinguished from express powers, implied powers are those that can be inferred or are implicit in the
wordings or conferred by necessary or fair implication of the enabling act. 17 As we held in Angara v. Electoral
Commission, when a general grant of power is conferred or a duty enjoined, every particular power necessary for
the exercise of one or the performance of the other is also conferred by necessary implication. 18 Clearly, the power
to impose preventive suspension pending investigation is one of the implied or inherent powers of MTRCB.
We cannot agree with petitioner’s assertion that the aforequoted IRR provision on preventive suspension is
applicable only to motion pictures and publicity materials. The scope of the MTRCB’s authority extends beyond
motion pictures. What the acronym MTRCB stands for would suggest as much. And while the law makes specific
reference to the closure of a television network, the suspension of a television program is a far less punitive
measure that can be undertaken, with the purpose of stopping further violations of PD 1986. Again, the MTRCB
would regretfully be rendered ineffective should it be subject to the restrictions petitioner envisages.
Just as untenable is petitioner’s argument on the nullity of the preventive suspension order on the ground of lack of
hearing. As it were, the MTRCB handed out the assailed order after petitioner, in response to a written notice,
appeared before that Board for a hearing on private respondents’ complaint. No less than petitioner admitted that
the order was issued after the adjournment of the hearing,19 proving that he had already appeared before the
MTRCB. Under Sec. 3, Chapter XIII of the IRR of PD 1986, preventive suspension shall issue "[a]ny time during the
pendency of the case." In this particular case, it was done after MTRCB duly apprised petitioner of his having
possibly violated PD 198620 and of administrative complaints that had been filed against him for such violation. 21
At any event, that preventive suspension can validly be meted out even without a hearing. 22
Petitioner next faults the MTRCB for denying him his right to the equal protection of the law, arguing that, owing to
the preventive suspension order, he was unable to answer the criticisms coming from the INC ministers.
Petitioner’s position does not persuade. The equal protection clause demands that "all persons subject to
legislation should be treated alike, under like circumstances and conditions both in the privileges conferred and
liabilities imposed."23 It guards against undue favor and individual privilege as well as hostile
discrimination.24 Surely, petitioner cannot, under the premises, place himself in the same shoes as the INC
ministers, who, for one, are not facing administrative complaints before the MTRCB. For another, he offers no proof
that the said ministers, in their TV programs, use language similar to that which he used in his own, necessitating
the MTRCB’s disciplinary action. If the immediate result of the preventive suspension order is that petitioner
remains temporarily gagged and is unable to answer his critics, this does not become a deprivation of the equal
protection guarantee. The Court need not belabor the fact that the circumstances of petitioner, as host of Ang
Dating Daan, on one hand, and the INC ministers, as hosts of Ang Tamang Daan, on the other, are, within the
purview of this case, simply too different to even consider whether or not there is a prima facie indication of
oppressive inequality.
Petitioner next injects the notion of religious freedom, submitting that what he uttered was religious speech, adding
that words like "putang babae" were said in exercise of his religious freedom.
The argument has no merit.
The Court is at a loss to understand how petitioner’s utterances in question can come within the pale of Sec. 5,
Article III of the 1987 Constitution on religious freedom. The section reads as follows:
No law shall be made respecting the establishment of a religion, or prohibiting the free exercise thereof. The free
exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be
allowed. No religious test shall be required for the exercise of civil or political rights.
There is nothing in petitioner’s statements subject of the complaints expressing any particular religious belief,
nothing furthering his avowed evangelical mission. The fact that he came out with his statements in a televised
bible exposition program does not automatically accord them the character of a religious discourse. Plain and
simple insults directed at another person cannot be elevated to the status of religious speech. Even petitioner’s
attempts to place his words in context show that he was moved by anger and the need to seek retribution, not by
any religious conviction. His claim, assuming its veracity, that some INC ministers distorted his statements
respecting amounts Ang Dating Daan owed to a TV station does not convert the foul language used in retaliation as
religious speech. We cannot accept that petitioner made his statements in defense of his reputation and religion, as
they constitute no intelligible defense or refutation of the alleged lies being spread by a rival religious group. They
simply illustrate that petitioner had descended to the level of name-calling and foul-language discourse. Petitioner
could have chosen to contradict and disprove his detractors, but opted for the low road.
Petitioner, as a final point in G.R. No. 164785, would have the Court nullify the 20-day preventive suspension order,
being, as insisted, an unconstitutional abridgement of the freedom of speech and expression and an impermissible
prior restraint. The main issue tendered respecting the adverted violation and the arguments holding such issue
dovetails with those challenging the three-month suspension imposed under the assailed September 27, 2004
MTRCB decision subject of review under G.R. No. 165636. Both overlapping issues and arguments shall be jointly
addressed.
G.R. No. 165636
Petitioner urges the striking down of the decision suspending him from hosting Ang Dating Daan for three months
on the main ground that the decision violates, apart from his religious freedom, his freedom of speech and
expression guaranteed under Sec. 4, Art. III of the Constitution, which reads:
No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people
peaceably to assemble and petition the government for redress of grievance.
He would also have the Court declare PD 1986, its Sec. 3(c) in particular, unconstitutional for reasons articulated in
this petition.
We are not persuaded as shall be explained shortly. But first, we restate certain general concepts and principles
underlying the freedom of speech and expression.
It is settled that expressions by means of newspapers, radio, television, and motion pictures come within the broad
protection of the free speech and expression clause.25 Each method though, because of its dissimilar presence in
the lives of people and accessibility to children, tends to present its own problems in the area of free speech
protection, with broadcast media, of all forms of communication, enjoying a lesser degree of protection. 26 Just as
settled is the rule that restrictions, be it in the form of prior restraint, e.g., judicial injunction against publication or
threat of cancellation of license/franchise, or subsequent liability, whether in libel and damage suits, prosecution for
sedition, or contempt proceedings, are anathema to the freedom of expression. Prior restraint means official
government restrictions on the press or other forms of expression in advance of actual publication or
dissemination.27 The freedom of expression, as with the other freedoms encased in the Bill of Rights, is, however,
not absolute. It may be regulated to some extent to serve important public interests, some forms of speech not
being protected. As has been held, the limits of the freedom of expression are reached when the expression
touches upon matters of essentially private concern.28 In the oft-quoted expression of Justice Holmes, the
constitutional guarantee "obviously was not intended to give immunity for every possible use of language." 29 From
Lucas v. Royo comes this line: "[T]he freedom to express one’s sentiments and belief does not grant one the
license to vilify in public the honor and integrity of another. Any sentiments must be expressed within the proper
forum and with proper regard for the rights of others."30
Indeed, as noted in Chaplinsky v. State of New Hampshire,31 "there are certain well-defined and narrowly limited
classes of speech that are harmful, the prevention and punishment of which has never been thought to raise any
Constitutional problems." In net effect, some forms of speech are not protected by the Constitution, meaning that
restrictions on unprotected speech may be decreed without running afoul of the freedom of speech clause. 32 A
speech would fall under the unprotected type if the utterances involved are "no essential part of any exposition of
ideas, and are of such slight social value as a step of truth that any benefit that may be derived from them is clearly
outweighed by the social interest in order and morality."33 Being of little or no value, there is, in dealing with or
regulating them, no imperative call for the application of the clear and present danger rule or the balancing-of-
interest test, they being essentially modes of weighing competing values, 34 or, with like effect, determining which of
the clashing interests should be advanced.
Petitioner asserts that his utterance in question is a protected form of speech.
The Court rules otherwise. It has been established in this jurisdiction that unprotected speech or low-value
expression refers to libelous statements, obscenity or pornography, false or misleading advertisement, insulting or
"fighting words", i.e., those which by their very utterance inflict injury or tend to incite an immediate breach of peace
and expression endangering national security.
The Court finds that petitioner’s statement can be treated as obscene, at least with respect to the average child.
Hence, it is, in that context, unprotected speech. In Fernando v. Court of Appeals, the Court expressed difficulty in
formulating a definition of obscenity that would apply to all cases, but nonetheless stated the ensuing observations
on the matter:
There is no perfect definition of "obscenity" but the latest word is that of Miller v. California which established basic
guidelines, to wit: (a) whether to the average person, applying contemporary standards would find the work, taken
as a whole, appeals to the prurient interest; (b) whether the work depicts or describes, in a patently offensive way,
sexual conduct specifically defined by the applicable state law; and (c) whether the work, taken as a whole, lacks
serious literary, artistic, political, or scientific value. But, it would be a serious misreading of Miller to conclude that
the trier of facts has the unbridled discretion in determining what is "patently offensive." x x x What remains clear is
that obscenity is an issue proper for judicial determination and should be treated on a case to case basis and on
the judge’s sound discretion.35
Following the contextual lessons of the cited case of Miller v. California, 36 a patently offensive utterance would
come within the pale of the term obscenity should it appeal to the prurient interest of an average listener applying
contemporary standards.
A cursory examination of the utterances complained of and the circumstances of the case reveal that to an average
adult, the utterances "Gago ka talaga x x x, masahol ka pa sa putang babae x x x. Yung putang babae ang
gumagana lang doon yung ibaba, [dito] kay Michael ang gumagana ang itaas, o di ba!" may not constitute obscene
but merely indecent utterances. They can be viewed as figures of speech or merely a play on words. In the context
they were used, they may not appeal to the prurient interests of an adult. The problem with the challenged
statements is that they were uttered in a TV program that is rated "G" or for general viewership, and in a time slot
that would likely reach even the eyes and ears of children.
While adults may have understood that the terms thus used were not to be taken literally, children could hardly be
expected to have the same discernment. Without parental guidance, the unbridled use of such language as that of
petitioner in a television broadcast could corrupt impressionable young minds. The term "putang babae" means "a
female prostitute," a term wholly inappropriate for children, who could look it up in a dictionary and just get the literal
meaning, missing the context within which it was used. Petitioner further used the terms, "ang gumagana lang doon
yung ibaba," making reference to the female sexual organ and how a female prostitute uses it in her trade, then
stating that Sandoval was worse than that by using his mouth in a similar manner. Children could be motivated by
curiosity and ask the meaning of what petitioner said, also without placing the phrase in context. They may be
inquisitive as to why Sandoval is different from a female prostitute and the reasons for the dissimilarity. And upon
learning the meanings of the words used, young minds, without the guidance of an adult, may, from their end, view
this kind of indecent speech as obscene, if they take these words literally and use them in their own speech or form
their own ideas on the matter. In this particular case, where children had the opportunity to hear petitioner’s words,
when speaking of the average person in the test for obscenity, we are speaking of the average child, not the
average adult. The average child may not have the adult’s grasp of figures of speech, and may lack the
understanding that language may be colorful, and words may convey more than the literal meaning. Undeniably the
subject speech is very suggestive of a female sexual organ and its function as such. In this sense, we find
petitioner’s utterances obscene and not entitled to protection under the umbrella of freedom of speech.
Even if we concede that petitioner’s remarks are not obscene but merely indecent speech, still the Court rules that
petitioner cannot avail himself of the constitutional protection of free speech. Said statements were made in a
medium easily accessible to children. With respect to the young minds, said utterances are to be treated as
unprotected speech.
No doubt what petitioner said constitutes indecent or offensive utterances. But while a jurisprudential pattern
involving certain offensive utterances conveyed in different mediums has emerged, this case is veritably one of first
impression, it being the first time that indecent speech communicated via television and the applicable norm for its
regulation are, in this jurisdiction, made the focal point. Federal Communications Commission (FCC) v. Pacifica
Foundation,37 a 1978 American landmark case cited in Eastern Broadcasting Corporation v. Dans, Jr.38 and Chavez
v. Gonzales,39 is a rich source of persuasive lessons. Foremost of these relates to indecent speech without prurient
appeal component coming under the category of protected speech depending on the context within which it was
made, irresistibly suggesting that, within a particular context, such indecent speech may validly be categorized as
unprotected, ergo, susceptible to restriction.
In FCC, seven of what were considered "filthy" words 40 earlier recorded in a monologue by a satiric humorist later
aired in the afternoon over a radio station owned by Pacifica Foundation. Upon the complaint of a man who heard
the pre-recorded monologue while driving with his son, FCC declared the language used as "patently offensive"
and "indecent" under a prohibiting law, though not necessarily obscene. FCC added, however, that its declaratory
order was issued in a "special factual context," referring, in gist, to an afternoon radio broadcast when children were
undoubtedly in the audience. Acting on the question of whether the FCC could regulate the subject utterance, the
US Supreme Court ruled in the affirmative, owing to two special features of the broadcast medium, to wit: (1) radio
is a pervasive medium and (2) broadcasting is uniquely accessible to children. The US Court, however, hastened to
add that the monologue would be protected speech in other contexts, albeit it did not expound and identify a
compelling state interest in putting FCC’s content-based regulatory action under scrutiny.
The Court in Chavez41 elucidated on the distinction between regulation or restriction of protected speech that is
content-based and that which is content-neutral. A content-based restraint is aimed at the contents or idea of the
expression, whereas a content-neutral restraint intends to regulate the time, place, and manner of the expression
under well-defined standards tailored to serve a compelling state interest, without restraint on the message of the
expression. Courts subject content-based restraint to strict scrutiny.
With the view we take of the case, the suspension MTRCB imposed under the premises was, in one perspective,
permissible restriction. We make this disposition against the backdrop of the following interplaying factors: First, the
indecent speech was made via television, a pervasive medium that, to borrow from Gonzales v. Kalaw
Katigbak,42easily "reaches every home where there is a set [and where] [c]hildren will likely be among the avid
viewers of the programs therein shown"; second, the broadcast was aired at the time of the day when there was a
reasonable risk that children might be in the audience; and third, petitioner uttered his speech on a "G" or "for
general patronage" rated program. Under Sec. 2(A) of Chapter IV of the IRR of the MTRCB, a show for general
patronage is "[s]uitable for all ages," meaning that the "material for television x x x in the judgment of the BOARD,
does not contain anything unsuitable for children and minors, and may be viewed without adult guidance or
supervision." The words petitioner used were, by any civilized norm, clearly not suitable for children. Where a
language is categorized as indecent, as in petitioner’s utterances on a general-patronage rated TV program, it may
be readily proscribed as unprotected speech.
A view has been advanced that unprotected speech refers only to pornography,43 false or misleading
advertisement,44 advocacy of imminent lawless action, and expression endangering national security. But this list is
not, as some members of the Court would submit, exclusive or carved in stone. Without going into specifics, it may
be stated without fear of contradiction that US decisional law goes beyond the aforesaid general exceptions. As the
Court has been impelled to recognize exceptions to the rule against censorship in the past, this particular case
constitutes yet another exception, another instance of unprotected speech, created by the necessity of protecting
the welfare of our children. As unprotected speech, petitioner’s utterances can be subjected to restraint or
regulation.
Despite the settled ruling in FCC which has remained undisturbed since 1978, petitioner asserts that his utterances
must present a clear and present danger of bringing about a substantive evil the State has a right and duty to
prevent and such danger must be grave and imminent.45
Petitioner’s invocation of the clear and present danger doctrine, arguably the most permissive of speech tests,
would not avail him any relief, for the application of said test is uncalled for under the premises. The doctrine, first
formulated by Justice Holmes, accords protection for utterances so that the printed or spoken words may not be
subject to prior restraint or subsequent punishment unless its expression creates a clear and present danger of
bringing about a substantial evil which the government has the power to prohibit. 46 Under the doctrine, freedom of
speech and of press is susceptible of restriction when and only when necessary to prevent grave and immediate
danger to interests which the government may lawfully protect. As it were, said doctrine evolved in the context of
prosecutions for rebellion and other crimes involving the overthrow of government.47 It was originally designed to
determine the latitude which should be given to speech that espouses anti-government action, or to have serious
and substantial deleterious consequences on the security and public order of the community. 48 The clear and
present danger rule has been applied to this jurisdiction.49 As a standard of limitation on free speech and press,
however, the clear and present danger test is not a magic incantation that wipes out all problems and does away
with analysis and judgment in the testing of the legitimacy of claims to free speech and which compels a court to
release a defendant from liability the moment the doctrine is invoked, absent proof of imminent catastrophic
disaster.50 As we observed in Eastern Broadcasting Corporation, the clear and present danger test "does not lend
itself to a simplistic and all embracing interpretation applicable to all utterances in all forums."51
To be sure, the clear and present danger doctrine is not the only test which has been applied by the courts.
Generally, said doctrine is applied to cases involving the overthrow of the government and even other evils which
do not clearly undermine national security. Since not all evils can be measured in terms of "proximity and degree"
the Court, however, in several cases—Ayer Productions v. Capulong52 and Gonzales v. COMELEC,53 applied the
balancing of interests test. Former Chief Justice Fred Ruiz Castro, in Gonzales v. COMELEC, elucidated in his
Separate Opinion that "where the legislation under constitutional attack interferes with the freedom of speech and
assembly in a more generalized way and where the effect of the speech and assembly in terms of the probability of
realization of a specific danger is not susceptible even of impressionistic calculation," 54 then the "balancing of
interests" test can be applied.
The Court explained also in Gonzales v. COMELEC the "balancing of interests" test:
When particular conduct is regulated in the interest of public order, and the regulation results in an indirect,
conditional, partial abridgment of speech, the duty of the courts is to determine which of the two conflicting interests
demands the greater protection under the particular circumstances presented. x x x We must, therefore, undertake
the "delicate and difficult task x x x to weigh the circumstances and to appraise the substantiality of the reasons
advanced in support of the regulation of the free enjoyment of rights x x x.
In enunciating standard premised on a judicial balancing of the conflicting social values and individual interests
competing for ascendancy in legislation which restricts expression, the court in Douds laid the basis for what has
been called the "balancing-of-interests" test which has found application in more recent decisions of the U.S.
Supreme Court. Briefly stated, the "balancing" test requires a court to take conscious and detailed consideration of
the interplay of interests observable in a given situation or type of situation.
xxxx
Although the urgency of the public interest sought to be secured by Congressional power restricting the individual’s
freedom, and the social importance and value of the freedom so restricted, "are to be judged in the concrete, not on
the basis of abstractions," a wide range of factors are necessarily relevant in ascertaining the point or line of
equilibrium. Among these are (a) the social value and importance of the specific aspect of the particular freedom
restricted by the legislation; (b) the specific thrust of the restriction, i.e., whether the restriction is direct or indirect,
whether or not the persons affected are few; (c) the value and importance of the public interest sought to be
secured by the legislation––the reference here is to the nature and gravity of the evil which Congress seeks to
prevent; (d) whether the specific restriction decreed by Congress is reasonably appropriate and necessary for the
protection of such public interest; and (e) whether the necessary safeguarding of the public interest involved may
be achieved by some other measure less restrictive of the protected freedom. 55
This balancing of interest test, to borrow from Professor Kauper, 56 rests on the theory that it is the court’s function in
a case before it when it finds public interests served by legislation, on the one hand, and the free expression clause
affected by it, on the other, to balance one against the other and arrive at a judgment where the greater weight shall
be placed. If, on balance, it appears that the public interest served by restrictive legislation is of such nature that it
outweighs the abridgment of freedom, then the court will find the legislation valid. In short, the balance-of-interests
theory rests on the basis that constitutional freedoms are not absolute, not even those stated in the free speech
and expression clause, and that they may be abridged to some extent to serve appropriate and important
interests.57 To the mind of the Court, the balancing of interest doctrine is the more appropriate test to follow.
In the case at bar, petitioner used indecent and obscene language and a three (3)-month suspension was slapped
on him for breach of MTRCB rules. In this setting, the assertion by petitioner of his enjoyment of his freedom of
speech is ranged against the duty of the government to protect and promote the development and welfare of the
youth.
After a careful examination of the factual milieu and the arguments raised by petitioner in support of his claim to
free speech, the Court rules that the government’s interest to protect and promote the interests and welfare of the
children adequately buttresses the reasonable curtailment and valid restraint on petitioner’s prayer to continue as
program host of Ang Dating Daan during the suspension period.
No doubt, one of the fundamental and most vital rights granted to citizens of a State is the freedom of speech or
expression, for without the enjoyment of such right, a free, stable, effective, and progressive democratic state would
be difficult to attain. Arrayed against the freedom of speech is the right of the youth to their moral, spiritual,
intellectual, and social being which the State is constitutionally tasked to promote and protect. Moreover, the State
is also mandated to recognize and support the vital role of the youth in nation building as laid down in Sec. 13, Art.
II of the 1987 Constitution.
The Constitution has, therefore, imposed the sacred obligation and responsibility on the State to provide protection
to the youth against illegal or improper activities which may prejudice their general well-being. The Article on youth,
approved on second reading by the Constitutional Commission, explained that the State shall "extend social
protection to minors against all forms of neglect, cruelty, exploitation, immorality, and practices which may foster
racial, religious or other forms of discrimination."58
Indisputably, the State has a compelling interest in extending social protection to minors against all forms of
neglect, exploitation, and immorality which may pollute innocent minds. It has a compelling interest in helping
parents, through regulatory mechanisms, protect their children’s minds from exposure to undesirable materials and
corrupting experiences. The Constitution, no less, in fact enjoins the State, as earlier indicated, to promote and
protect the physical, moral, spiritual, intellectual, and social well-being of the youth to better prepare them fulfill their
role in the field of nation-building.59 In the same way, the State is mandated to support parents in the rearing of the
youth for civic efficiency and the development of moral character.60
Petitioner’s offensive and obscene language uttered in a television broadcast, without doubt, was easily accessible
to the children. His statements could have exposed children to a language that is unacceptable in everyday use. As
such, the welfare of children and the State’s mandate to protect and care for them, as parens patriae, 61 constitute a
substantial and compelling government interest in regulating petitioner’s utterances in TV broadcast as provided in
PD 1986.
FCC explains the duty of the government to act as parens patriae to protect the children who, because of age or
interest capacity, are susceptible of being corrupted or prejudiced by offensive language, thus:
[B]roadcasting is uniquely accessible to children, even those too young to read. Although Cohen’s written message,
["Fuck the Draft"], might have been incomprehensible to a first grader, Pacifica’s broadcast could have enlarged a
child’s vocabulary in an instant. Other forms of offensive expression may be withheld from the young without
restricting the expression at its source. Bookstores and motion picture theaters, for example, may be prohibited
from making indecent material available to children. We held in Ginsberg v. New York that the government’s
interest in the "well-being of its youth" and in supporting "parents’ claim to authority in their own household" justified
the regulation of otherwise protected expression. The ease with which children may obtain access to broadcast
material, coupled with the concerns recognized in Ginsberg, amply justify special treatment of indecent
broadcasting.
Moreover, Gonzales v. Kalaw Katigbak likewise stressed the duty of the State to attend to the welfare of the young:
x x x It is the consensus of this Court that where television is concerned, a less liberal approach calls for
observance. This is so because unlike motion pictures where the patrons have to pay their way, television reaches
every home where there is a set. Children then will likely will be among the avid viewers of the programs therein
shown. As was observed by Circuit Court of Appeals Judge Jerome Frank, it is hardly the concern of the law to deal
with the sexual fantasies of the adult population. It cannot be denied though that the State as parens patriae is
called upon to manifest an attitude of caring for the welfare of the young.62
The compelling need to protect the young impels us to sustain the regulatory action MTRCB took in the narrow
confines of the case. To reiterate, FCC justified the restraint on the TV broadcast grounded on the following
considerations: (1) the use of television with its unique accessibility to children, as a medium of broadcast of a
patently offensive speech; (2) the time of broadcast; and (3) the "G" rating of the Ang Dating Daan program. And in
agreeing with MTRCB, the court takes stock of and cites with approval the following excerpts from FCC:
It is appropriate, in conclusion, to emphasize the narrowness of our holding. This case does not involve a two-way
radio conversation between a cab driver and a dispatcher, or a telecast of an Elizabethan comedy. We have not
decided that an occasional expletive in either setting would justify any sanction. x x x The [FFC’s] decision rested
entirely on a nuisance rationale under which context is all important. The concept requires consideration of a host
of variables. The time of day was emphasized by the [FFC]. The content of the program in which the language is
used will affect the composition of the audience x x x. As Mr. Justice Sutherland wrote a ‘nuisance may be merely a
right thing in the wrong place, like a pig in the parlor instead of the barnyard.’ We simply hold that when the [FCC]
finds that a pig has entered the parlor, the exercise of its regulatory power does not depend on proof that the pig is
obscene. (Citation omitted.)
There can be no quibbling that the remarks in question petitioner uttered on prime-time television are blatantly
indecent if not outright obscene. It is the kind of speech that PD 1986 proscribes necessitating the exercise by
MTRCB of statutory disciplinary powers. It is the kind of speech that the State has the inherent prerogative, nay
duty, to regulate and prevent should such action served and further compelling state interests. One who utters
indecent, insulting, or offensive words on television when unsuspecting children are in the audience is, in the
graphic language of FCC, a "pig in the parlor." Public interest would be served if the "pig" is reasonably restrained
or even removed from the "parlor."
Ergo, petitioner’s offensive and indecent language can be subjected to prior restraint.
Petitioner theorizes that the three (3)-month suspension is either prior restraint or subsequent punishment that,
however, includes prior restraint, albeit indirectly.
After a review of the facts, the Court finds that what MTRCB imposed on petitioner is an administrative sanction or
subsequent punishment for his offensive and obscene language in Ang Dating Daan.
To clarify, statutes imposing prior restraints on speech are generally illegal and presumed unconstitutional
breaches of the freedom of speech. The exceptions to prior restraint are movies, television, and radio broadcast
censorship in view of its access to numerous people, including the young who must be insulated from the
prejudicial effects of unprotected speech. PD 1986 was passed creating the Board of Review for Motion Pictures
and Television (now MTRCB) and which requires prior permit or license before showing a motion picture or
broadcasting a TV program. The Board can classify movies and television programs and can cancel permits for
exhibition of films or television broadcast.lavvphi1.net
The power of MTRCB to regulate and even impose some prior restraint on radio and television shows, even
religious programs, was upheld in Iglesia Ni Cristo v. Court of Appeals. Speaking through Chief Justice Reynato S.
Puno, the Court wrote:
We thus reject petitioner’s postulate that its religious program is per se beyond review by the respondent Board. Its
public broadcast on TV of its religious program brings it out of the bosom of internal belief. Television is a medium
that reaches even the eyes and ears of children. The Court iterates the rule that the exercise of religious freedom
can be regulated by the State when it will bring about the clear and present danger of some substantive evil which
the State is duty bound to prevent, i.e., serious detriment to the more overriding interest of public health, public
morals, or public welfare. x x x
xxxx
While the thesis has a lot to commend itself, we are not ready to hold that [PD 1986] is unconstitutional for
Congress to grant an administrative body quasi-judicial power to preview and classify TV programs and enforce its
decision subject to review by our courts. As far back as 1921, we upheld this setup in Sotto vs. Ruiz, viz:
"The use of the mails by private persons is in the nature of a privilege which can be regulated in order to avoid its
abuse. Persons possess no absolute right to put into the mail anything they please, regardless of its character."63
Bernas adds:
Under the decree a movie classification board is made the arbiter of what movies and television programs or parts
of either are fit for public consumption. It decides what movies are "immoral, indecent, contrary to law and/or good
customs, injurious to the prestige of the Republic of the Philippines or its people," and what "tend to incite
subversion, insurrection, rebellion or sedition," or "tend to undermine the faith and confidence of the people in their
government and/or duly constituted authorities," etc. Moreover, its decisions are executory unless stopped by a
court.64
Moreover, in MTRCB v. ABS-CBN Broadcasting Corporation,65 it was held that the power of review and prior
approval of MTRCB extends to all television programs and is valid despite the freedom of speech guaranteed by
the Constitution. Thus, all broadcast networks are regulated by the MTRCB since they are required to get a permit
before they air their television programs. Consequently, their right to enjoy their freedom of speech is subject to that
requirement. As lucidly explained by Justice Dante O. Tinga, government regulations through the MTRCB became
"a necessary evil" with the government taking the role of assigning bandwidth to individual broadcasters. The
stations explicitly agreed to this regulatory scheme; otherwise, chaos would result in the television broadcast
industry as competing broadcasters will interfere or co-opt each other’s signals. In this scheme, station owners and
broadcasters in effect waived their right to the full enjoyment of their right to freedom of speech in radio and
television programs and impliedly agreed that said right may be subject to prior restraint—denial of permit or
subsequent punishment, like suspension or cancellation of permit, among others.
The three (3) months suspension in this case is not a prior restraint on the right of petitioner to continue with the
broadcast of Ang Dating Daan as a permit was already issued to him by MTRCB for such broadcast. Rather, the
suspension is in the form of permissible administrative sanction or subsequent punishment for the offensive and
obscene remarks he uttered on the evening of August 10, 2004 in his television program, Ang Dating Daan. It is a
sanction that the MTRCB may validly impose under its charter without running afoul of the free speech clause. And
the imposition is separate and distinct from the criminal action the Board may take pursuant to Sec. 3(i) of PD 1986
and the remedies that may be availed of by the aggrieved private party under the provisions on libel or tort, if
applicable. As FCC teaches, the imposition of sanctions on broadcasters who indulge in profane or indecent
broadcasting does not constitute forbidden censorship. Lest it be overlooked, the sanction imposed is not per se for
petitioner’s exercise of his freedom of speech via television, but for the indecent contents of his utterances in a "G"
rated TV program.
More importantly, petitioner is deemed to have yielded his right to his full enjoyment of his freedom of speech to
regulation under PD 1986 and its IRR as television station owners, program producers, and hosts have impliedly
accepted the power of MTRCB to regulate the broadcast industry.
Neither can petitioner’s virtual inability to speak in his program during the period of suspension be plausibly treated
as prior restraint on future speech. For viewed in its proper perspective, the suspension is in the nature of an
intermediate penalty for uttering an unprotected form of speech. It is definitely a lesser punishment than the
permissible cancellation of exhibition or broadcast permit or license. In fine, the suspension meted was simply part
of the duties of the MTRCB in the enforcement and administration of the law which it is tasked to implement.
Viewed in its proper context, the suspension sought to penalize past speech made on prime-time "G" rated TV
program; it does not bar future speech of petitioner in other television programs; it is a permissible subsequent
administrative sanction; it should not be confused with a prior restraint on speech. While not on all fours, the Court,
in MTRCB,66sustained the power of the MTRCB to penalize a broadcast company for exhibiting/airing a pre-taped
TV episode without Board authorization in violation of Sec. 7 of PD 1986.
Any simplistic suggestion, however, that the MTRCB would be crossing the limits of its authority were it to regulate
and even restrain the prime-time television broadcast of indecent or obscene speech in a "G" rated program is not
acceptable. As made clear in Eastern Broadcasting Corporation, "the freedom of television and radio broadcasting
is somewhat lesser in scope than the freedom accorded to newspaper and print media." The MTRCB, as a
regulatory agency, must have the wherewithal to enforce its mandate, which would not be effective if its punitive
actions would be limited to mere fines. Television broadcasts should be subject to some form of regulation,
considering the ease with which they can be accessed, and violations of the regulations must be met with
appropriate and proportional disciplinary action. The suspension of a violating television program would be a
sufficient punishment and serve as a deterrent for those responsible. The prevention of the broadcast of petitioner’s
television program is justified, and does not constitute prohibited prior restraint. It behooves the Court to respond to
the needs of the changing times, and craft jurisprudence to reflect these times.
Petitioner, in questioning the three-month suspension, also tags as unconstitutional the very law creating the
MTRCB, arguing that PD 1986, as applied to him, infringes also upon his freedom of religion. The Court has earlier
adequately explained why petitioner’s undue reliance on the religious freedom cannot lend justification, let alone an
exempting dimension to his licentious utterances in his program. The Court sees no need to address anew the
repetitive arguments on religious freedom. As earlier discussed in the disposition of the petition in G.R. No. 164785,
what was uttered was in no way a religious speech. Parenthetically, petitioner’s attempt to characterize his speech
as a legitimate defense of his religion fails miserably. He tries to place his words in perspective, arguing evidently
as an afterthought that this was his method of refuting the alleged distortion of his statements by the INC hosts of
Ang Tamang Daan. But on the night he uttered them in his television program, the word simply came out as
profane language, without any warning or guidance for undiscerning ears.
As to petitioner’s other argument about having been denied due process and equal protection of the law, suffice it
to state that we have at length debunked similar arguments in G.R. No. 164785. There is no need to further delve
into the fact that petitioner was afforded due process when he attended the hearing of the MTRCB, and that he was
unable to demonstrate that he was unjustly discriminated against in the MTRCB proceedings.
Finally, petitioner argues that there has been undue delegation of legislative power, as PD 1986 does not provide
for the range of imposable penalties that may be applied with respect to violations of the provisions of the law.
The argument is without merit.
In Edu v. Ericta, the Court discussed the matter of undue delegation of legislative power in the following wise:
It is a fundamental principle flowing from the doctrine of separation of powers that Congress may not delegate its
legislative power to the two other branches of the government, subject to the exception that local governments may
over local affairs participate in its exercise. What cannot be delegated is the authority under the Constitution to
make laws and to alter and repeal them; the test is the completeness of the statute in all its term and provisions
when it leaves the hands of the legislature. To determine whether or not there is an undue delegation of legislative
power, the inquiry must be directed to the scope and definiteness of the measure enacted. The legislature does not
abdicate its functions when it describes what job must be done, who is to do it, and what is the scope of his
authority. For a complex economy, that may indeed be the only way in which the legislative process can go
forward. A distinction has rightfully been made between delegation of power to make laws which necessarily
involves a discretion as to what it shall be, which constitutionally may not be done, and delegation of authority or
discretion as to its execution to be exercised under and in pursuance of the law, to which no valid objection can be
made. The Constitution is thus not to be regarded as denying the legislature the necessary resources of flexibility
and practicability.
To avoid the taint of unlawful delegation, there must be a standard, which implies at the very least that the
legislature itself determines matters of principle and lays down fundamental policy. Otherwise, the charge of
complete abdication may be hard to repel. A standard thus defines legislative policy, marks its limits, maps out its
boundaries and specifies the public agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which legislative purpose may be carried out. Thereafter, the
executive or administrative office designated may in pursuance of the above guidelines promulgate supplemental
rules and regulations.67
Based on the foregoing pronouncements and analyzing the law in question, petitioner’s protestation about undue
delegation of legislative power for the sole reason that PD 1986 does not provide for a range of penalties for
violation of the law is untenable. His thesis is that MTRCB, in promulgating the IRR of PD 1986, prescribing a
schedule of penalties for violation of the provisions of the decree, went beyond the terms of the law.
Petitioner’s posture is flawed by the erroneous assumptions holding it together, the first assumption being that PD
1986 does not prescribe the imposition of, or authorize the MTRCB to impose, penalties for violators of PD 1986.
As earlier indicated, however, the MTRCB, by express and direct conferment of power and functions, is charged
with supervising and regulating, granting, denying, or canceling permits for the exhibition and/or television
broadcast of all motion pictures, television programs, and publicity materials to the end that no such objectionable
pictures, programs, and materials shall be exhibited and/or broadcast by television. Complementing this provision is
Sec. 3(k) of the decree authorizing the MTRCB "to exercise such powers and functions as may be necessary or
incidental to the attainment of the purpose and objectives of [the law]." As earlier explained, the investiture of
supervisory, regulatory, and disciplinary power would surely be a meaningless grant if it did not carry with it the
power to penalize the supervised or the regulated as may be proportionate to the offense committed, charged, and
proved. As the Court said in Chavez v. National Housing Authority:
x x x [W]hen a general grant of power is conferred or duty enjoined, every particular power necessary for the
exercise of the one or the performance of the other is also conferred. x x x [W]hen the statute does not specify the
particular method to be followed or used by a government agency in the exercise of the power vested in it by law,
said agency has the authority to adopt any reasonable method to carry out its function. 68
Given the foregoing perspective, it stands to reason that the power of the MTRCB to regulate and supervise the
exhibition of TV programs carries with it or necessarily implies the authority to take effective punitive action for
violation of the law sought to be enforced. And would it not be logical too to say that the power to deny or cancel a
permit for the exhibition of a TV program or broadcast necessarily includes the lesser power to suspend?
The MTRCB promulgated the IRR of PD 1986 in accordance with Sec. 3(a) which, for reference, provides that
agency with the power "[to] promulgate such rules and regulations as are necessary or proper for the
implementation of this Act, and the accomplishment of its purposes and objectives x x x." And Chapter XIII, Sec. 1
of the IRR providing:
Section 1. VIOLATIONS AND ADMINISTRATIVE SANCTIONS.––Without prejudice to the immediate filing of the
appropriate criminal action and the immediate seizure of the pertinent articles pursuant to Section 13, any violation
of PD 1986 and its Implementing Rules and Regulations governing motion pictures, television programs, and
related promotional materials shall be penalized with suspension or cancellation of permits and/or licenses issued
by the Board and/or with the imposition of fines and other administrative penalty/penalties. The Board recognizes
the existing Table of Administrative Penalties attached without prejudice to the power of the Board to amend it
when the need arises. In the meantime the existing revised Table of Administrative Penalties shall be enforced.
(Emphasis added.)
This is, in the final analysis, no more than a measure to specifically implement the aforequoted provisions of Sec.
3(d) and (k). Contrary to what petitioner implies, the IRR does not expand the mandate of the MTRCB under the
law or partake of the nature of an unauthorized administrative legislation. The MTRCB cannot shirk its responsibility
to regulate the public airwaves and employ such means as it can as a guardian of the public.
In Sec. 3(c), one can already find the permissible actions of the MTRCB, along with the standards to be applied to
determine whether there have been statutory breaches. The MTRCB may evaluate motion pictures, television
programs, and publicity materials "applying contemporary Filipino cultural values as standard," and, from there,
determine whether these audio and video materials "are objectionable for being immoral, indecent, contrary to law
and/or good customs, [etc.] x x x" and apply the sanctions it deems proper. The lawmaking body cannot possibly
provide for all the details in the enforcement of a particular statute.69 The grant of the rule-making power to
administrative agencies is a relaxation of the principle of separation of powers and is an exception to the non-
delegation of legislative powers.70 Administrative regulations or "subordinate legislation" calculated to promote the
public interest are necessary because of "the growing complexity of modern life, the multiplication of the subjects of
governmental regulations, and the increased difficulty of administering the law." 71 Allowing the MTRCB some
reasonable elbow-room in its operations and, in the exercise of its statutory disciplinary functions, according it
ample latitude in fixing, by way of an appropriate issuance, administrative penalties with due regard for the severity
of the offense and attending mitigating or aggravating circumstances, as the case may be, would be consistent with
its mandate to effectively and efficiently regulate the movie and television industry.
But even as we uphold the power of the MTRCB to review and impose sanctions for violations of PD 1986, its
decision to suspend petitioner must be modified, for nowhere in that issuance, particularly the power-defining Sec.
3 nor in the MTRCB Schedule of Administrative Penalties effective January 1, 1999 is the Board empowered to
suspend the program host or even to prevent certain people from appearing in television programs. The MTRCB, to
be sure, may prohibit the broadcast of such television programs or cancel permits for exhibition, but it may not
suspend television personalities, for such would be beyond its jurisdiction. The MTRCB cannot extend its exercise
of regulation beyond what the law provides. Only persons, offenses, and penalties clearly falling clearly within the
letter and spirit of PD 1986 will be considered to be within the decree’s penal or disciplinary operation. And when it
exists, the reasonable doubt must be resolved in favor of the person charged with violating the statute and for
whom the penalty is sought. Thus, the MTRCB’s decision in Administrative Case No. 01-04 dated September 27,
2004 and the subsequent order issued pursuant to said decision must be modified. The suspension should cover
only the television program on which petitioner appeared and uttered the offensive and obscene language, which
sanction is what the law and the facts obtaining call for.
In ending, what petitioner obviously advocates is an unrestricted speech paradigm in which absolute
permissiveness is the norm. Petitioner’s flawed belief that he may simply utter gutter profanity on television without
adverse consequences, under the guise of free speech, does not lend itself to acceptance in this jurisdiction. We
repeat: freedoms of speech and expression are not absolute freedoms. To say "any act that restrains speech
should be greeted with furrowed brows" is not to say that any act that restrains or regulates speech or expression is
per se invalid. This only recognizes the importance of freedoms of speech and expression, and indicates the
necessity to carefully scrutinize acts that may restrain or regulate speech.
WHEREFORE, the decision of the MTRCB in Adm. Case No. 01-04 dated September 27, 2004 is hereby
AFFIRMED with the MODIFICATION of limiting the suspension to the program Ang Dating Daan. As thus modified,
the fallo of the MTRCB shall read as follows:
WHEREFORE, in view of all the foregoing, a Decision is hereby rendered, imposing a penalty of THREE (3)
MONTHS SUSPENSION on the television program, Ang Dating Daan, subject of the instant petition.
Co-respondents Joselito Mallari, Luzviminda Cruz, and UNTV Channel 37 and its owner, PBC, are hereby
exonerated for lack of evidence.
Costs against petitioner.
SO ORDERED.

PHILIPPINE NATIONAL OIL COMPANY vs. COURT OF APPEALS

G.R. No. 109976. April 26, 2005

PHILIPPINE NATIONAL BANK vs. COURT OF APPEALS

G.R. No. 112800. April 26, 2005

DECISION
This is a consolidation of two Petitions for Review on Certiorari filed by the Philippine National Oil Company
(PNOC)[1] and the Philippine National Bank (PNB),[2] assailing the decisions of the Court of Appeals in CA-G.R. SP
No. 29583[3] and CA-G.R. SP No. 29526,[4] respectively, which both affirmed the decision of the Court of Tax
Appeals (CTA) in CTA Case No. 4249.[5]
The Petitions before this Court originated from a sworn statement submitted by private respondent Tirso B.
Savellano (Savellano) to the Bureau of Internal Revenue (BIR) on 24 June 1986. Through his sworn statement,
private respondent Savellano informed the BIR that PNB had failed to withhold the 15% final tax on interest
earnings and/or yields from the money placements of PNOC with the said bank, in violation of Presidential Decree
(P.D.) No. 1931. P.D. No. 1931, which took effect on 11 June 1984, withdrew all tax exemptions of government-
owned and controlled corporations.
In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxes on the interests
earned by its money placements with PNB and which PNB did not withhold. [6]PNOC wrote the BIR on 25
September 1986, and made an offer to compromise its tax liability, which it estimated to be in the sum
of P304,419,396.83, excluding interest and surcharges, as of 31 July 1986. PNOC proposed to set-off its tax
liability against a claim for tax refund/credit of the National Power Corporation (NAPOCOR), then pending with the
BIR, in the amount of P335,259,450.21. The amount of the claim for tax refund/credit was supposedly a receivable
account of PNOC from NAPOCOR.[7]
On 08 October 1986, the BIR sent a demand letter to PNB, as withholding agent, for the payment of the final
tax on the interest earnings and/or yields from PNOCs money placements with the bank, from 15 October 1984 to
15 October 1986, in the total amount of P376,301,133.33.[8] On the same date, the BIR also mailed a letter to
PNOC informing it of the demand letter sent to PNB.[9]
PNOC, in another letter, dated 14 October 1986, reiterated its proposal to settle its tax liability through the set-
off of the said tax liability against NAPOCORS pending claim for tax refund/credit. [10] The BIR replied on 11
November 1986 that the proposal for set-off was premature since NAPOCORs claim was still under process. Once
more, BIR requested PNOC to settle its tax liability in the total amount of P385,961,580.82, consisting
of P303,343,765.32 final tax, plus P82,617,815.50 interest computed until 15 November 1986.[11]
On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC
proposed a compromise by paying P91,003,129.89, representing 30% of the P303,343,766.29 basic tax, in
accordance with the provisions of Executive Order (E.O.) No. 44. [12]
Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987, accepted the compromise. The
BIR received a total tax payment on the interest earnings and/or yields from PNOCs money placements with PNB
in the amount of P93,955,479.12, broken down as follows:
Previous payment made by PNB P 2,952,349.23
Add: Payment made by PNOC pursuant to the P 91,003,129.89
compromise agreement of June 22, 1987
Total tax payment P 93,955,479.12[13]
Private respondent Savellano, through four installments, was paid the informers reward in the total amount
of P14,093,321.89, representing 15% of the P93,955,479.12 tax collected by the BIR from PNOC and PNB. He
received the last installment on 01 December 1987.[14]
On 07 January 1988, private respondent Savellano, through his legal counsel, wrote the BIR to demand
payment of the balance of his informers reward, computed as follows:
BIR tax assessment P 385,961,580.82
Final tax rate 0.15
Informers reward due P 57,894,237.12
(BIR deficiency tax assessment x Final
tax rate)
Less: Payment received by private P 14,093,321.89
respondent Savellano
Outstanding balance P 43,800,915.25[15]
BIR Commissioner Tan replied through a letter, dated 08 March 1988, that private respondent Savellano was
already fully paid the informers reward equivalent to 15% of the amount of tax actually collected by the BIR
pursuant to its compromise agreement with PNOC. BIR Commissioner Tan further explained that the compromise
was in accordance with the provisions of E.O. No. 44, Revenue Memorandum Order (RMO) No. 39-86, and RMO
No. 4-87.[16]
Private respondent Savellano submitted another letter, dated 24 March 1988, to BIR Commissioner Tan,
seeking reconsideration of his decision to compromise the tax liability of PNOC. In the same letter, private
respondent Savellano questioned the legality of the compromise agreement entered into by the BIR and PNOC and
claimed that the tax liability should have been collected in full. [17]
On 08 April 1988, while the aforesaid Motion for Reconsideration was still pending with the BIR, private
respondent Savellano filed a Petition for Review ad cautelam with the CTA, docketed as CTA Case No. 4249. He
claimed therein that BIR Commissioner Tan acted with grave abuse of discretion and/or whimsical exercise of
jurisdiction in entering into a compromise agreement that resulted in a gross and unconscionable diminution of his
reward. Private respondent Savellano prayed for the enforcement and collection of the total tax assessment against
taxpayer PNOC and/or withholding agent PNB; and the payment to him by the BIR Commissioner of the 15%
informers reward on the total tax collected.[18] He would later amend his Petition to implead PNOC and PNB as
necessary and indispensable parties since they were parties to the compromise agreement. [19]
In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no cause of action
against him, and that private respondent Savellano was already paid the informers reward due him. Alleging that
the Petition was baseless and malicious, BIR Commissioner Tan filed a counterclaim for exemplary damages
against private respondent Savellano.[20]
 PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked jurisdiction to decide the
case.[21] In its Resolution, dated 28 November 1988, the CTA denied the Motions to Dismiss since the question of
lack of jurisdiction and/or cause of action do not appear to be indubitable.[22]
After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their respective Answers to the
amended Petition. PNOC averred, among other things, that (1) it had no privity with private respondent Savellano;
(2) the BIR Commissioners discretionary act in entering into the compromise agreement had legal basis under E.O.
No. 44 and RMO No. 39-86 and RMO No. 4-87; and (3) the CTA had no jurisdiction to resolve the case against
it.[23] On the other hand, PNB asserted that (1) the CTA lacked jurisdiction over the case; and (2) the BIR
Commissioners decision to accept the compromise was discretionary on his part and, therefore, cannot be
reviewed or interfered with by the courts.[24] PNOC and PNB later filed their amended Answer invoking an opinion of
the Commission on Audit (COA) disallowing the payment by the BIR of informers reward to private respondent
Savellano.[25]
The CTA, thereafter, ordered the parties to submit their evidence,[26] to be followed by their respective
Memoranda.[27]
On 23 November 1990, private respondent Savellano, filed a Manifestation with Motion for Suspension of
Proceedings, claiming that his pending Motion for Reconsideration with the BIR Commissioner may soon be
resolved.[28] Both PNOC and PNB opposed the said Motion.[29]
Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB, dated 16 January 1991,
demanded that PNB pay deficiency withholding tax on the interest earnings and/or yields from PNOCs money
placements, in the amount of P294,958,450.73, computed as follows:
Withholding tax, plus interest under the letter of P 385,961,580.82
demand dated November 11, 1986
Less: Amount paid under E.O. No. 44 P 91,003,129.89
Amount still due and collectible P 294,958,450.73[30]
This BIR letter was received by PNB on 06 February 1991, [31] and was protested by it through a letter, dated
11 April 1991.[32] The BIR denied PNBs protest on the ground that it was filed out of time and, thus, the assessment
had already become final.[33]
Private respondent Savellano, on 22 February 1991, filed an Omnibus Motion moving to withdraw his previous
Motion for Suspension of Proceeding since BIR Commissioner Ong had finally resolved his Motion for
Reconsideration, and submitting by way of supplemental offer of evidence (1) the letter of BIR Commissioner Ong,
dated 13 February 1991, informing private respondent Savellano of the action on his Motion for Reconsideration;
and (2) the demand-letter of BIR Commissioner Ong to PNB, dated 16 January 1991.[34]
Despite the oppositions of PNOC and PNB, the CTA, in a Resolution, dated 02 May 1991, resolved to allow
private respondent Savellano to withdraw his previous Motion for Suspension of Proceeding and to admit the
supplementary evidence being offered by the same party.[35]
In its Order, dated 03 June 1991, the CTA considered the case submitted for decision as of the following day,
04 June 1991.[36]
On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR assessment, dated 16 January
1991, for deficiency withholding tax in the sum of P294,958,450.73. PNB alleged that its appeal to the DOJ was
sanctioned under P.D. No. 242, which provided for the administrative settlement of disputes between government
offices, agencies, and instrumentalities, including government-owned and controlled corporations.[37]
Three days later, on 14 June 1991, PNB filed a Motion to Suspend Proceedings before the CTA since it had a
pending appeal before the DOJ.[38] On 04 July 1991, PNB filed with the CTA a Motion for Reconsideration of its
Order, dated 03 June 1991, submitting the case for decision as of 04 June 1991, and prayed that the CTA hold its
resolution of the case in view of PNBs appeal pending before the DOJ. [39]
On 17 July 1991, PNB filed a Motion to Suspend the Collection of Tax by the BIR. It alleged that despite its
request for reconsideration of the deficiency withholding tax assessment, dated 16 January 1991, BIR
Commissioner Ong sent another letter, dated 23 April 1991, demanding payment of the P294,958,450.73
deficiency withholding tax on the interest earnings and/or yields from PNOCs money placements. The same letter
informed PNB that this was the BIR Commissioners final decision on the matter and that the BIR Commissioner
was set to issue a warrant of distraint and/or levy against PNBs deposits with the Central Bank of the Philippines.
PNB further alleged that the levy and distraint of PNBs deposits, unless restrained by the CTA, would cause great
and irreparable prejudice not only to PNB, a government-owned and controlled corporation, but also to the
Government itself.[40]
Pursuant to the Order of the CTA, during the hearing on 19 July 1991, [41] the parties submitted their respective
Memoranda on PNBs Motion to Suspend Proceedings.[42]
On 20 September 1991, private respondent Savellano filed another Omnibus Motion calling the attention of the
CTA to the fact that the BIR already issued, on 12 August 1991, a warrant of garnishment addressed to the Central
Bank Governor and against PNB. In compliance with the said warrant, the Central Bank issued, on 23 August 1991,
a debit advice against the demand deposit account of PNB with the Central Bank for the amount
of P294,958,450.73, with a corresponding transfer of the same amount to the demand deposit-in-trust of BIR with
the Central Bank. Since the assessment had already been enforced, PNBs Motion to Suspend Proceedings
became moot and academic. Private respondent Savellano, thus, moved for the denial of PNBs Motion to Suspend
Proceedings and for an order requiring BIR to deposit with the CTA the amount of P44,243,767.00 as his informers
reward, representing 15% of the deficiency withholding tax collected.[43]
Both PNOC and PNB opposed private respondent Savellanos Omnibus Motion, dated 20 September 1991,
arguing that the DOJ already ordered the suspension of the collection of the tax deficiency. There was therefore no
basis for private respondent Savellanos Motion as the same was premised on the erroneous assumption that the
tax deficiency had been collected. When the DOJ denied the BIR Commissioners Motion to Dismiss and required
him to file his answer, the DOJ assumed jurisdiction over PNBs appeal, and the CTA should first suspend its
proceedings to give the DOJ the opportunity to decide the validity and propriety of the tax assessment against
PNB.[44]
The CTA, on 28 May 1992, rendered its decision, wherein it upheld its jurisdiction and disposed of the case as
follows:
WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the Bureau of Internal
Revenue, on the one hand, and the Philippine National Oil Company and Philippine National Bank, on the other, as
WITHOUT FORCE AND EFFECT;
The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of January 16, 1991
against Philippine National Bank which has become final and unappealable by collecting from Philippine National
Bank the deficiency withholding tax, plus interest totalling (sic) P294,958,450.73;
Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his entitlement to informers
reward based on fifteen percent (15%) of the deficiency withholding total tax collected in this case
or P44,243.767.00 subject to existing rules and regulations governing payment of reward to informers. [45]
In a Resolution, dated 16 November 1992, the CTA denied the Motions for Reconsideration filed by PNOC
and PNB since they substantially raised the same issues in their previous pleadings and which had already been
passed upon and resolved adversely against them.[46]
PNOC and PNB filed separate appeals with the Court of Appeals seeking the reversal of the CTA decision in
CTA Case No. 4249, dated 28 May 1992, and the CTA Resolution in the same case, dated 16 November 1992.
PNOCs appeal was docketed as CA-G.R. SP No. 29583, while PNBs appeal was CA-G.R. SP No. 29526. In both
cases, the Court of Appeals affirmed the decision of the CTA.
In the meantime, the Central Bank again issued on 02 September 1992 a debit advice against the demand
deposit account of PNB with the Central Bank for the amount of P294,958,450.73,[47] and on 15 September 1992,
credited the same amount to the demand deposit account of the Treasurer of the Republic of the Philippines. [48] On
04 November 1992, the Treasurer of the Republic issued a journal voucher transferring P294,958,450.73 to the
account of the BIR.[49] PNB, in turn, debited P294,958,450.73 from the deposit account of PNOC with PNB. [50]
PNOC and PNB then filed separate Petitions for Review on Certiorari with this Court, praying that the
decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526, respectively, both
affirming the decision of the CTA in CTA Case No. 4249, be reversed and set aside. These two Petitions were
consolidated since they involved identical parties and factual background, and the resolution of related, if not
exactly, the same issues.
In its Petition for Review, PNOC alleged the following errors committed by the Court of Appeals in CA-G.R. SP
No. 29583:
1. The Court of Appeals erred in holding that the deficiency taxes of PNOC could not be the subject of a
compromise under Executive Order No. 44; and
 2. The Court of Appeals erred in holding that Savellano is entitled to additional informers reward.[51]
PNB, in its own Petition for Review, assailed the decision of the Court of Appeals in CA-G.R. SP No. 29526,
assigning the following errors:
1. Respondent Court erred in not finding that the Court of Tax Appeals lacks jurisdiction on the
controversy involving BIR and PNB (both government instrumentalities) regarding the new
assessment of BIR against PNB;
2. The respondent Court erred in not finding that the Court of Tax Appeals has no jurisdiction to question
the compromise agreement entered into by the Commissioner of Internal Revenue; and
3. The respondent Court erred in not ruling that the Commissioner of Internal Revenue cannot unilaterally
annul tax compromises validly entered into by his predecessor.[52]
The decisions of the Court of Appeals in CA-GR SP No. 29583 and CA-G.R. SP No. 29526, affirmed the
decision of the CTA in CTA Case No. 4249. The resolution, therefore, of the assigned errors in the Court of
Appeals decisions essentially requires a review of the CTA decision itself.
In consolidating the present Petitions, this Court finds that PNOC and PNB are basically questioning the (1)
Jurisdiction of the CTA in CTA Case No. 4249; (2) Declaration by the CTA that the compromise agreement was
without force and effect; (3) Finding of the CTA that the deficiency withholding tax assessment against PNB had
already become final and unappealable and, thus, enforceable; and (4) Order of the CTA directing payment of
additional informers reward to private respondent Savellano.
I
Jurisdiction of the CTA
A. The demand letter, dated 16 January 1991 did not constitute a new assessment against PNB.
The main argument of PNB in assailing the jurisdiction of the CTA in CTA Case No. 4249 is that the BIR
demand letter, dated 16 January 1991,[53] should be considered as a new assessment against PNB. As a new
assessment, it gave rise to a new dispute and controversy solely between the BIR and PNB that should be
administratively settled or adjudicated, as provided in P.D. No. 242.
This argument is without merit. The issuance by the BIR of the demand letter, dated 16 January 1991, was
merely a development in the continuing effort of the BIR to collect the tax assessed against PNOC and PNB way
back in 1986.
BIRs first letter, dated 08 August 1986, was addressed to PNOC, requesting it to settle its tax liability. The BIR
subsequently sent another letter, dated 08 October 1986, to PNB, as withholding agent, demanding payment of the
tax it had failed to withhold on the interest earnings and/or yields from PNOCs money placements. PNOC wrote the
BIR three succeeding letters offering to compromise its tax liability; PNB, on the other hand, did not act on the
demand letter it received, dated 08 October 1986. The BIR and PNOC eventually reached a compromise
agreement on 22 June 1987. Private respondent Savellano questioned the validity of the compromise agreement
because the reduced amount of tax collected from PNOC, by virtue of the compromise agreement, also
proportionately reduced his informers reward. Private respondent Savellano then requested the BIR Commissioner
to review and reconsider the compromise agreement. Acting on the request of private respondent Savellano, the
new BIR Commissioner declared the compromise agreement to be without basis and issued the demand letter,
dated 16 January 1991, against PNB, as the withholding agent for PNOC.
It is clear from the foregoing that the BIR demand letter, dated 16 January 1991, could not stand alone as a
new assessment. It should always be considered in the factual context summarized above.
In fact, the demand letter, dated 16 January 1991, actually referred to the withholding tax assessment first
issued in 1986 and its eventual settlement through a compromise agreement. In addition, the computation of the
deficiency withholding tax was based on the figures from the 1986 assessments against PNOC and PNB, and BIR
no longer conducted a new audit or investigation of either PNOC and PNB before it issued the demand letter on 16
January 1991.
These constant references to past events and circumstances demonstrate that the demand letter, dated 16
January 1991, was not a new assessment, but rather, the latest action taken by the BIR to collect on the tax
assessments issued against PNOC and PNB in 1986.
PNB argues that the demand letter, dated 16 January 1991, introduced a new controversy. We see it
differently as the said demand letter presented the resolution by BIR Commissioner Ong of the previous
controversy involving the compromise of the 1986 tax assessments. BIR Commissioner Ong explicitly declared
therein that the compromise agreement was without legal basis, and requested PNB, as the withholding agent, to
pay the amount of withholding tax still due.
B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of Republic Act No. 1125.
Having established that the BIR demand letter, dated 16 January 1991, did not constitute a new assessment,
then, there could be no basis for PNBs claim that any dispute arising from the new assessment should only be
between BIR and PNB.
Still proceeding from the argument that there was a new dispute between PNB and BIR, PNB sought the
suspension of the proceedings in CTA Case No. 4249, after it contested the deficiency withholding tax assessment
against it and the demand for payment thereof before the DOJ, pursuant to P.D. No. 242. The CTA, however,
correctly sustained its jurisdiction and continued the proceedings in CTA Case No. 4249; and, in effect, rejected
DOJs claim of jurisdiction to administratively settle or adjudicate BIRs assessment against PNB.
The CTA assumed jurisdiction over the Petition for Review filed by private respondent Savellano based on the
following provision of Rep. Act No. 1125, the Act creating the Court of Tax Appeals:
SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by
appeal, as herein provided -
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue; . . . (Underscoring ours.)
In his Petition before the CTA, private respondent Savellano requested a review of the decisions of then BIR
Commissioner Tan to enter into a compromise agreement with PNOC and to reject his claim for additional
informers reward. He submitted before the CTA questions of law involving the interpretation and application of (1)
E.O. No. 44, and its implementing rules and regulations, which authorized the BIR Commissioner to compromise
delinquent accounts and disputed assessments pending as of 31 December 1985; and (2) Section 316(1) of the
National Internal Revenue Code of 1977 (NIRC of 1977), as amended, which granted to the informer a reward
equivalent to 15% of the actual amount recovered or collected by the BIR. [54]These should undoubtedly be
considered as matters arising from the NIRC and other laws being administered by the BIR, thus, appealable to the
CTA under Section 7(1) of Rep. Act No. 1125.
PNB, however, insists on the jurisdiction of the DOJ over its appeal of the deficiency withholding tax
assessment by virtue of P.D. No. 242. Provisions on jurisdiction of P.D. No. 242 read:
SECTION 1. Provisions of law to the contrary notwithstanding, all disputes, claims and controversies solely
between or among the departments, bureaus, offices, agencies, and instrumentalities of the National Government,
including government-owned or controlled corporations, but excluding constitutional offices or agencies, arising
from the interpretation and application of statutes, contracts or agreements, shall henceforth be administratively
settled or adjudicated as provided hereinafter; Provided, That this shall not apply to cases already pending in court
at the time of the effectivity of this decree.
SECTION 2. In all cases involving only questions of law, the same shall be submitted to and settled or adjudicated
by the Secretary of Justice, as Attorney General and ex officio legal adviser of all government-owned or controlled
corporations and entities, in consonance with Section 83 of the Revised Administrative Code. His ruling or
determination of the question in each case shall be conclusive and binding upon all the parties concerned.
SECTION 3. Cases involving mixed questions of law and of fact or only factual issues shall be submitted to and
settled or adjudicated by:
(a) The Solicitor General, with respect to disputes or claims controversies between or among the
departments, bureaus, offices and other agencies of the National Government;
(b) The Government Corporate Counsel, with respect to disputes or claims or controversies between or
among government-owned or controlled corporations or entities being served by the Office of the
Government Corporate Counsel; and
(c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not fall
under the categories mentioned in paragraphs (a) and (b).
 The PNB and DOJ are of the same position that P.D. No. 242, the more recent law, repealed Section 7(1) of
Rep. Act No. 1125,[55] based on the pronouncement of this Court in Development Bank of the Philippines v. Court of
Appeals, et al., [56] quoted below:
The Court expresses its entire agreement with the conclusion of the Court of Appeals and the basic premises
thereof that there is an "irreconcilable repugnancybetween Section 7(2) of R.A. No. 1125 and P.D. No. 242," and
hence, that the later enactment (P.D. No. 242), being the latest expression of the legislative will, should prevail over
the earlier.
In the said case, it was expressly declared that P.D. No. 242 repealed Section 7(2) of Rep. Act No. 1125, which
provides for the exclusive appellate jurisdiction of the CTA over decisions of the Commissioner of Customs. PNB
contends that P.D. No. 242 should be deemed to have likewise repealed Section 7(1) of Rep. Act No. 1125, which
provide for the exclusive appellate jurisdiction of the CTA over decisions of the BIR Commissioner. [57]
After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and P.D. No. 242, this Court finds itself
in disagreement with the pronouncement made in Development Bank of the Philippines v. Court of Appeals, et
al.,[58] and refers to the earlier case of Lichauco & Company, Inc. v. Apostol, et al.,[59] for the guidelines in
determining the relation between the two statutes in question, to wit:
The cases relating to the subject of repeal by implication all proceed on the assumption that if the act of later date
clearly reveals an intention on the part of the law making power to abrogate the prior law, this intention must be
given effect; but there must always be a sufficient revelation of this intention, and it has become an unbending rule
of statutory construction that the intention to repeal a former law will not be imputed to the Legislature when it
appears that the two statutes, or provisions, with reference to which the question arises bear to each other the
relation of general to special. (Underscoring ours.)
When there appears to be an inconsistency or conflict between two statutes and one of the statutes is a
general law, while the other is a special law, then repeal by implication is not the primary rule applicable. The
following rule should principally govern instead:
Specific legislation upon a particular subject is not affected by a general law upon the same subject unless it clearly
appears that the provisions of the two laws are so repugnant that the legislators must have intended by the later to
modify or repeal the earlier legislation. The special act and the general law must stand together, the one as the law
of the particular subject and the other as the general law of the land. (Ex Parte United States, 226 U. S., 420; 57 L.
ed., 281; Ex Parte Crow Dog, 109 U. S., 556; 27 L. ed., 1030; Partee vs. St. Louis & S. F. R. Co., 204 Fed. Rep.,
970.)
Where there are two acts or provisions, one of which is special and particular, and certainly includes the matter in
question, and the other general, which, if standing alone, would include the same matter and thus conflict with the
special act or provision, the special must be taken as intended to constitute an exception to the general act or
provision, especially when such general and special acts or provisions are contemporaneous, as the Legislature is
not to be presumed to have intended a conflict. (Crane v. Reeder and Reeder, 22 Mich., 322, 334; University of
Utah vs. Richards, 77 Am. St. Rep., 928.)[60]
It has, thus, become an established rule of statutory construction that between a general law and a special
law, the special law prevails Generalia specialibus non derogant.[61]
Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a general law that
deals with administrative settlement or adjudication of disputes, claims and controversies between or among
government offices, agencies and instrumentalities, including government-owned or controlled corporations. Its
coverage is broad and sweeping, encompassing all disputes, claims and controversies. It has been incorporated as
Chapter 14, Book IV of E.O. No. 292, otherwise known as the Revised Administrative Code of the
Philippines.[62] On the other hand, Rep. Act No. 1125 is a special law [63] dealing with a specific subject matter the
creation of the CTA, which shall exercise exclusive appellate jurisdiction over the tax disputes and controversies
enumerated therein.
Following the rule on statutory construction involving a general and a special law previously discussed, then
P.D. No. 242 should not affect Rep. Act No. 1125. Rep. Act No. 1125, specifically Section 7 thereof on the
jurisdiction of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and controversies, falling under
Section 7 of Rep. Act No. 1125, even though solely among government offices, agencies, and instrumentalities,
including government-owned and controlled corporations, remain in the exclusive appellate jurisdiction of the CTA.
Such a construction resolves the alleged inconsistency or conflict between the two statutes, and the fact that P.D.
No. 242 is the more recent law is no longer significant.
 Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No. 1125, the present dispute
would still not be covered by P.D. No. 242. Section 1 of P.D. No. 242 explicitly provides that only disputes, claims
and controversies solely between or among departments, bureaus, offices, agencies, and instrumentalities of the
National Government, including constitutional offices or agencies, as well as government-owned and controlled
corporations, shall be administratively settled or adjudicated. While the BIR is obviously a government bureau, and
both PNOC and PNB are government-owned and controlled corporations, respondent Savellano is a private citizen.
His standing in the controversy could not be lightly brushed aside. It was private respondent Savellano who gave
the BIR the information that resulted in the investigation of PNOC and PNB; who requested the BIR Commissioner
to reconsider the compromise agreement in question; and who initiated CTA Case No. 4249 by filing a Petition for
Review.
In Bay View Hotel, Inc. v. Manila Hotel Workers Union-PTGWO, et al.,[64] this Court upheld the jurisdiction of
the Court of Industrial Relations over the ordinary courts and justified its decision in the following manner:
We are unprepared to break away from the teaching in the cases just adverted to. To draw a tenuous jurisdictional
line is to undermine stability in labor litigations. A piecemeal resort to one court and another gives rise to multiplicity
of suits. To force the employees to shuttle from one court to another to secure full redress is a situation gravely
prejudicial. The time to be lost, effort wasted, anxiety augmented, additional expense incurred these are
considerations which weigh heavily against split jurisdiction. Indeed, it is more in keeping with orderly administration
of justice that all the causes of action here be cognizable and heard by only one court: the Court of Industrial
Relations.
The same justification is used in the present case to reject DOJs jurisdiction over the BIR and PNB, to the
exclusion of the other parties. The rights of all four parties in CTA Case No. 4249, namely the BIR, as the tax
collector; PNOC, the taxpayer; PNB, the withholding agent; and private respondent Savellano, the informer
claiming his reward; arose from the same factual background and were so closely interrelated, that a
pronouncement as to one would definitely have repercussions on the others. The ends of justice were best served
when the CTA continued to exercise its jurisdiction over CTA Case No. 4249. The CTA, which had assumed
jurisdiction over all the parties to the controversy, could render a comprehensive resolution of the issues raised and
grant complete relief to the parties.
II
Validity of the Compromise Agreement
A. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not a delinquent account
or a disputed assessment as of 31 December 1985.
PNOC and PNB, on different grounds, dispute the decision of the CTA in CTA Case No. 4249 declaring the
compromise agreement between BIR and PNOC without force and effect.
PNOC asserts that the compromise agreement was in accordance with E.O. No. 44, and its implementing
rules and regulations, and should be binding upon the parties thereto.
E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives the power to compromise
any disputed assessment or delinquent account pending as of 31 December 1985, upon the payment of an amount
equal to 30% of the basic tax assessed; in which case, the corresponding interests and penalties shall be
condoned. E.O. No. 44 took effect on 04 September 1986 and remained effective until 31 March 1987.
The disputed assessments or delinquent accounts that the BIR Commissioner could compromise under E.O.
No. 44 are defined under Revenue Regulation (RR) No. 17-86, as follows:
a) Delinquent account Refers to the amount of tax due on or before December 31, 1985 from a taxpayer who
failed to pay the same within the time prescribed for its payment arising from (1) a self assessed tax,
whether or not a tax return was filed, or (2) a deficiency assessment issued by the BIR which has become
final and executory.
Where no return was filed, the taxpayer shall be considered delinquent as of the time the tax on such
return was due, and in availing of the compromise, a tax return shall be filed as a basis for computing the
amount of compromise to be paid.
b) Disputed assessment refers to a tax assessment disputed or protested on or before December 31, 1985
under any of the following categories:
1) if the same is administratively protested within thirty (30) days from the date the taxpayer received the
assessment, or
2.) if the decision of the BIR on the taxpayers administrative protest is appealed by the taxpayer before an
appropriate court.
PNOCs tax liability could not be considered a delinquent account since (1) it was not self-assessed, because
the BIR conducted an investigation and assessment of PNOC and PNB after obtaining information regarding the
non-withholding of tax from private respondent Savellano; and (2) the demand letter, issued against it on 08 August
1986, could not have been a deficiency assessment that became final and executory by 31 December 1985.
The dissenting opinion contends, however, that the tax liability of PNOC constitutes a self-assessed tax, and
is, therefore, a delinquent account as of 31 December 1985, qualifying for a compromise under E.O. No. 44. It
anchors its argument on the declaration made by this Court in Tupaz v. Ulep,[65] that internal revenue taxes are self-
assessing.
It is not denied herein that the self-assessing system governs Philippine internal revenue taxes. The dissenting
opinion itself defines self-assessed tax as, a tax that the taxpayer himself assesses or computes and pays to the
taxing authority. Clearly, such a system imposes upon the taxpayer the obligation to conduct an assessment of
himself so he could determine and declare the amount to be used as tax basis, any deductions therefrom, and
finally, the tax due.
E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed. The phrase whether or not a tax
return was filed only refers to the compliance by the taxpayer with the obligation to file a return on the dates
specified by law, but it does not do away with the requisite that the tax must be self-assessed in order for the
taxpayer to avail of the compromise. The second paragraph of Section 2(a) of RR No. 17-86 expressly commands,
and still imposes upon the taxpayer, who is availing of the compromise under E.O. No. 44, and who has not
previously filed any return, the duty to conduct self-assessment by filing a tax return that would be used as the
basis for computing the amount of compromise to be paid.
Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after conducting a self-
assessment, discovers or becomes aware that he had failed to pay a tax due on or before 31 December 1985,
regardless of whether he had previously filed a return to reflect such tax; voluntarily comes forward and admits to
the BIR his tax liability; and applies for a compromise thereof. In case the taxpayer has not previously filed any
return, he must fill out such a return reflecting therein his own declaration of the taxable amount and computation of
the tax due. The compromise payment shall be computed based on the amount reflected in the tax return submitted
by the taxpayer himself.
Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively, conducted self-assessment in
this case. There is no showing that in the absence of the tax assessment issued by the BIR against them, that
PNOC and/or PNB would have voluntarily admitted their tax liabilities, already amounting to P385,961,580.82, as of
15 November 1986, and would have offered to compromise the same. In fact, both PNOC and PNB were
conspicuously silent about their tax liabilities until they were assessed thereon.
Any attempt by PNOC and PNB to assess and declare by themselves their tax liabilities had already been
overtaken by the BIRs conduct of its audit and investigation and subsequent issuance of the assessments, dated
08 August 1986 and 08 October 1986, against PNOC and PNB, respectively. The said tax assessments,
uncontested and undisputed, presented the results of the BIR audit and investigation and the computation of the
total amount of tax liabilities of PNOC and PNB. They should be controlling in this case, and should not be so easily
and conveniently ignored and set aside. It would be a contradiction to claim that the tax liabilities of PNOC and PNB
are self-assessed and, at the same time, BIR-assessed; when it is clear and simple that it had been the BIR that
conducted the assessment and determined the tax liabilities of PNOC and PNB.
That the BIR-assessed tax liability should be differentiated from a self-assessed one, is supported by the
provisions of RR No. 17-86 on the basis for computing the amount of compromise payment. Note that where tax
liabilities are self-assessed, the compromise payment shall be computed based on the tax return filed by the
taxpayer.[66] On the other hand, where the BIR already issued an assessment, the compromise payment shall be
computed based on the tax due on the assessment notice.[67]
For instances where the BIR had already issued an assessment against the taxpayer, the tax liability could still
be compromised under E.O. No. 44 only if: (1) the assessment had been final and executory on or before 31
December 1985 and, therefore, considered a delinquent account as of said date; [68] or (2) the assessment had been
disputed or protested on or before 31 December 1985.[69]
RMO No. 39-86, which provides the guidelines for the implementation of E.O. No. 44, does mention different
types of assessments that may be compromised under said statute (i.e., jeopardy assessments, arbitrary
assessments, and tax assessments of doubtful validity). RMO No. 39-86 may not have expressly stated any
qualification for these particular types of assessments; nonetheless, E.O. No. 44 specifically refers only to
assessments that were delinquent or disputed as of 31 December 1985.
E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so that they are harmonized
and consistent with each other. Accordingly, this Court finds that the different types of assessments mentioned in
RMO No. 39-86 would still have to qualify as delinquent accounts or disputed assessments as of 31 Dcember
1985, so that they could be compromised under E.O. No. 44.
The BIR had first written to PNOC on 08 August 1986, demanding payment of the income tax on the interest
earnings and/or yields from PNOCs money placements with PNB from 15 October 1984 to 15 October 1986. This
demand letter could be regarded as the first assessment notice against PNOC.
Such an assessment, issued only on 08 August 1986, could not have been final and executory as of 31
December 1985 so as to constitute a delinquent account. Neither was the assessment against PNOC an
assessment that could have been disputed or protested on or before 31 December 1985, having been issued on a
later date.
Given that PNOCs tax liability did not constitute a delinquent account or a disputed assessment as of 31
December 1985, then it could not be compromised under E.O. No. 44.
The assessment against PNOC, instead, was more appropriately covered by Revenue Memorandum Circular
(RMC) No. 31-86. RMC No. 31-86 clarifies the scope of availment of the tax amnesty under E.O. No. 41 [70] and
compromise payments on delinquent accounts and disputed assessments under E.O. No. 44. The third paragraph
of RMC No. 31-86 reads:
[T]axpayers against whom assessments had been issued from January 1 to August 21, 1986 may settle their tax
liabilities by way of compromise under Section 246 of the Tax Code as amended by paying 30% of the basic
assessment excluding surcharge, interest, penalties and other increments thereto.
The above-quoted paragraph supports the position that only assessments that were disputed or that were final
and executory by 31 December 1985 could be the subject of a compromise under E.O. No. 44. Assessments
issued between 01 January to 21 August 1986 could still be compromised by payment of 30% of the basic tax
assessed, not anymore pursuant to E.O. No. 44, but pursuant to Section 246 of the NIRC of 1977, as amended.
Section 246 of the NIRC of 1977, as amended, granted the BIR Commissioner the authority to compromise
the payment of any internal revenue tax under the following circumstances: (1) there exists a reasonable doubt as
to the validity of the claim against the taxpayer; or (2) the financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax.[71]
There are substantial differences in circumstances under which compromises may be granted under Section
246 of the NIRC of 1977, as amended, and E.O. No. 44. Although PNOC and PNB have extensively argued their
entitlement to compromise under E.O. No. 44, neither of them has alleged, much less, has presented any evidence
to prove that it may compromise its tax liability under Section 246 of the NIRC of 1977, as amended.
B. The tax liability of PNB as withholding agent also did not qualify for compromise under E.O. No. 44.
Before proceeding any further, this Court reconsiders the conclusion made by BIR Commissioner Ong in his
demand letter, dated 16 January 1991, that the compromise settlement executed between the BIR and PNOC was
without legal basis because withholding taxes were not actually taxes that could be compromised, but a penalty for
PNBs failure to withhold and for which it was made personally liable.
E.O. No. 44 covers disputed or delinquency cases where the person assessed was himself the taxpayer rather
than a mere agent.[72] RMO No. 39-86 expressly allows a withholding agent, who failed to withhold the required tax
because of neglect, ignorance of the law, or his belief that he was not required by law to withhold tax, to apply for a
compromise settlement of his withholding tax liability under E.O. No. 44. A withholding agent, in such a situation,
may compromise the withholding tax assessment against him precisely because he is being held directly
accountable for the tax.[73]
RMO No. 39-86 distinguishes between the withholding agent in the foregoing situation from the withholding
agent who withheld the tax but failed to remit the amount to the Government. A withholding agent in the latter
situation is the one disqualified from applying for a compromise settlement because he is being made accountable
as an agent, who held funds in trust for the Government.[74]
Both situations, however, involve withholding agents. The right to compromise under these provisions should
have been claimed by PNB, the withholding agent for PNOC. The BIR held PNB personally accountable for its
failure to withhold the tax on the interest earnings and/or yields from PNOCs money placements with PNB. The BIR
sent a demand letter, dated 08 October 1986, addressed directly to PNB, for payment of the withholding tax
assessed against it, but PNB failed to take any action on the said demand letter. Yet, all the offers to compromise
the withholding tax assessment came from PNOC and PNOC did not claim that it made the offers to compromise
on behalf of PNB.
Moreover, the general requirement of E.O. No. 44 still applies to withholding agents that the withholding tax
liability must either be a delinquent account or a disputed assessment as of 31 December 1985 to qualify for
compromise settlement. The demand letter against PNB, which also served as its assessment notice, had been
issued on 08 October 1986 or two months later than PNOCs. PNBs withholding tax liability could not be considered
a delinquent account or a disputed assessment, as defined under RR No. 17-86, for the same reasons that PNOCs
tax liability did not constitute as such. The tax liability of PNB, therefore, was also not eligible for compromise
settlement under E.O. No. 44.
C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44, their application for compromise
was filed beyond the deadline.
Despite already ruling that the tax liabilities of PNOC and PNB could not be compromised under E.O. No. 44,
this Court still deems it necessary to discuss the finding of the CTA that the compromise agreement had been filed
beyond the effectivity of E.O. No. 44, since the CTA made a declaration in relation thereto that paragraph 2 of RMO
No. 39-86 was null and void for unduly extending the effectivity of E.O. No. 44.
Paragraph 2 of RMO No. 39-86 provides that:
2. Period for availment. Filing of application for compromise settlement under the said law shall be effective only
until March 31, 1987. Applications filed on or before this date shall be valid even if the payment or payments of the
compromise amount shall be made after the said date, subject, however, to the provisions of Executive Order No.
44 and its implementing Revenue Regulations No. 17-86.
It is well-settled in this jurisdiction that administrative authorities are vested with the power to make rules and
regulations because it is impracticable for the lawmakers to provide general regulations for various and varying
details of management. The interpretation given to a rule or regulation by those charged with its execution is
entitled to the greatest weight by the court construing such rule or regulation, and such interpretation will be
followed unless it appears to be clearly unreasonable or arbitrary.[75]
RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be unreasonable or arbitrary. It does not
unduly expand the coverage of E.O. No. 44 by merely providing that applications for compromise filed until 31
March 1987 are still valid, even if payment of the compromised amount is made on a later date.
It cannot be expected that the compromise allowed under E.O. No. 44 can be automatically granted upon
mere filing of the application by the taxpayer. Irrefutably, the applications would still have to be processed by the
BIR to determine compliance with the requirements of E.O. No. 44. As it is uncontested that a taxpayer could still
file an application for compromise on 31 March 1987, the very last day of effectivity of E.O. No. 44, it would be
unreasonable to expect the BIR to process and approve the taxpayers application within the same date considering
the volume of applications filed and pending approval, plus the other matters the BIR personnel would also have to
attend to. Thus, RMO No. 39-86 merely assures the taxpayers that their applications would still be processed and
could be approved on a later date. Payment, of course, shall be made by the taxpayer only after his application had
been approved and the compromised amount had been determined.
Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to be addressed is whether
PNOC had been able to submit an application for compromise on or before 31 March 1987 in compliance thereof.
Although the compromise agreement was executed only on 22 June 1987, PNOC is claiming that it had already
written a letter to the BIR, as early as 25 September 1986, offering to compromise its tax liability, and that the said
letter should be considered as PNOCs application for compromise settlement.
A perusal of PNOCs letter, dated 25 September 1986, would reveal, however, that the terms of its proposed
compromise did not conform to those authorized by E.O. No. 44. PNOC did not offer to pay outright 30% of the
basic tax assessed against it as required by E.O. No. 44; and instead, made the following offer:
(2) That PNOC be permitted to set-off its foregoing mentioned tax liability of P304,419,396.83 against the tax
refund/credit claims of the National Power Corporation (NPC) for specific taxes on fuel oil sold to NPC
totaling P335,259,450.21, which tax refunds/credits are actually receivable accounts of our Company from NPC.[76]
PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986. [77] The BIR, in its letters to PNOC,
dated 8 October 1986[78] and 11 November 1986,[79] consistently denied PNOCs offer because the claim for tax
refund/credit of NAPOCOR was still under process, so that the offer to set-off such claim against PNOCs tax
liability was premature.
Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a tax liability against a
claim for tax refund/credit. Compromise under E.O. No. 44 may be availed of only in the following circumstances:
SEC. 3. Who may avail. Any person, natural or juridical, may settle thru a compromise any delinquent account or
disputed assessment which has been due as of December 31, 1985, by paying an amount equal to thirty
percent (30%) of the basic tax assessed.
SEC. 6. Mode of Payment. Upon acceptance of the proposed compromise, the amount offered as compromise in
complete settlement of the delinquent account shall be paid immediately in cash or managers certified check.
Deferred or staggered payments of compromise amounts over P50,000 may be considered on a case to case basis
in accordance with the extant regulations of the Bureau upon approval of the Commissioner of Internal Revenue,
his Deputy or Assistant as delineated in their respective jurisdictions.
If the Compromise amount is not paid as required herein, the compromise agreement is automatically nullified and
the delinquent account reverted to the original amount plus the statutory increments, which shall be collected thru
the summary and/or judicial processes provided by law.
E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish his tax liability by paying the
compromise amount equivalent to 30% of the basic tax. It also benefits the Government by making collection of
delinquent accounts and disputed assessments simpler, easier, and faster. Payment of the compromise amount
must be made immediately, in cash or in managers check. Although deferred or staggered payments may be
allowed on a case-to-case basis, the mode of payment remains unchanged, and must still be made either in cash
or in managers check.
PNOCs offer to set-off was obviously made to avoid actual cash-out by the company. The offer defeated the
purpose of E.O. No. 44 because it would not only delay collection, but more importantly, it would not guarantee
collection. First of all, BIRs collection was contingent on whether the claim for tax refund/credit of NAPOCOR would
be subsequently granted. Second, collection could not be made immediately and would have to wait until the
resolution of the claim for tax refund/credit of NAPOCOR. Third, there is no proof, other than the bare allegation of
PNOC, that NAPOCORs claim for tax refund/credit is an account receivable of PNOC. A possible dispute between
NAPOCOR and PNOC as to the proceeds of the tax refund/credit would only delay collection by the BIR even
further.
It was only in its letter, dated 09 June 1987, that PNOC actually offered to compromise its tax liability in
accordance with the terms and circumstances prescribed by E.O. No. 44 and its implementing rules and
regulations, by stating that:
Consequently, we reiterate our previous request for compromise under E.O. No. 44, and convey our preparedness
to settle the subject tax assessment liability by payment of the compromise amount of P91,003,129.89,
representing thirty percent (30%) of the basic tax assessment of P303,343,766.29, in accordance with E.O. No. 44
and its implementing BIR Revenue Memorandum Order No. 39-86.[80]
PNOC claimed in the same letter that it had previously requested for a compromise under the terms of E.O.
No. 44, but this Court could not find evidence of such previous request. There are stark and substantial differences
in the terms of PNOCs offer to compromise in its earlier letters, dated 25 September 1986 and 14 October 1986
(set-off of the entire amount of its tax liability against the claim for tax refund/credit of NAPOCOR), to those in its
letter, dated 09 June 1987 (payment of the compromise amount representing 30% of the basic tax assessed
against it), making it difficult for this Court to accept that the letter of 09 June 1987 merely reiterated PNOCs offer to
compromise in its earlier letters.
This Court likewise cannot give credence to PNOCs allegation that beginning 25 September 1986, the date of
its first letter to the BIR, there were continuing negotiations between PNOC and BIR that culminated in the
compromise agreement on 22 June 1987. Aside from the exchange of letters recounted in the preceding
paragraphs, both PNOC and PNB failed to present any other proof of the supposed negotiations.
After the BIR denied the second offer of PNOC to set-off its tax liability against the claim for tax refund/credit of
NAPOCOR in a letter, dated 11 November 1986, there is no other evidence of subsequent communication between
PNOC and the BIR. It was only after almost seven months, or on 09 June 1987, that PNOC again wrote a letter to
the BIR, this time offering to pay the compromise amount of 30% of the basic tax assessed against. This letter was
already filed beyond 31 March 1987, after the lapse of the effectivity of E.O. No. 44 and the deadline for filing
applications for compromise under the said statute.
 Evidence of meetings between PNOC and the BIR, or any other form of communication, wherein the parties
presented their offer and counter-offer to the other, would have been very valuable in explaining and supporting
BIR Commissioner Tans decision to accept PNOCs third offer to compromise after denying the previous two. The
absence of such evidence herein negates PNOCs claim of actual negotiations with the BIR.
Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB qualify as delinquent accounts or
disputed assessments as of 31 December 1985, the application for compromise filed by PNOC on 09 June 1987,
and accepted by then BIR Commissioner Tan on 22 June 1987, was still filed way beyond 31 March 1987, the
expiration date of the effectivity of E.O. No. 44 and the deadline for filing of applications for compromise under
RMO No. 39-86.
D. The BIR Commissioners discretionary authority to enter into a compromise agreement is not absolute and the
CTA may inquire into allegations of abuse thereof.
The foregoing discussion supports the CTAs conclusion that the compromise agreement between PNOC and
the BIR was indeed without legal basis. Despite this lack of legal support for the execution of the said compromise
agreement, PNB argues that the CTA still had no jurisdiction to review and set aside the compromise agreement. It
contends that the authority to compromise is purely discretionary on the BIR Commissioner and the courts cannot
interfere with his exercise thereof.
It is generally true that purely administrative and discretionary functions may not be interfered with by the
courts; but when the exercise of such functions by the administrative officer is tainted by a failure to abide by the
command of the law, then it is incumbent on the courts to set matters right, with this Court having the last say on
the matter.[81]
The manner by which BIR Commissioner Tan exercised his discretionary power to enter into a compromise
was brought under the scrutiny of the CTA amidst allegations of grave abuse of discretion and/or whimsical
exercise of jurisdiction.[82] The discretionary power of the BIR Commissioner to enter into compromises cannot be
superior over the power of judicial review by the courts.
The discretionary authority to compromise granted to the BIR Commissioner is never meant to be absolute,
uncontrolled and unrestrained. No such unlimited power may be validly granted to any officer of the government,
except perhaps in cases of national emergency.[83] In this case, the BIR Commissioners authority to compromise,
whether under E.O. No. 44 or Section 246 of the NIRC of 1977, as amended, can only be exercised under certain
circumstances specifically identified in said statutes. The BIR Commissioner would have to exercise his discretion
within the parameters set by the law, and in case he abuses his discretion, the CTA may correct such abuse if the
matter is appealed to them.[84]
Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely exercised his authority to enter
into a compromise specially granted by E.O. No. 44. Since this Court has already made a determination that the
compromise agreement did not qualify under E.O. No. 44, BIR Commissioner Tans decision to agree to the
compromise should have been reviewed in the light of the general authority granted to the BIR Commissioner to
compromise taxes under Section 246 of the NIRC of 1977, as amended. Then again, petitioners PNOC and PNB
failed to allege, much less present evidence, that BIR Commissioner Tan acted in accordance with Section 246 of
the NIRC of 1977, as amended, when he entered into the compromise agreement with PNOC.
E. The CTA may set aside a compromise agreement that is contrary to law and public policy.
PNB also asserts that the CTA had no jurisdiction to set aside a compromise agreement entered into in good
faith. It relies on the decision of this Court in Republic v. Sandiganbayan [85]that a compromise agreement cannot be
set aside merely because it is too one-sided. A compromise agreement should be respected by the courts as the
res judicata between the parties thereto.
This Court, though, finds that there are substantial differences in the factual background of Republic v.
Sandiganbayan and the present case.
The compromise agreement executed between the Presidential Commission on Good Government (PCGG)
and Roberto S. Benedicto in Republic v. Sandiganbayan was judicially approved by the Sandiganbayan. The
Sandiganbayan had ample opportunity to examine the validity of the compromise agreement since two years
elapsed from the time the agreement was executed up to the time it was judicially approved. This Court even stated
in the said case that, We are not dealing with the usual compromise agreement perfunctorily submitted to a court
and approved as a matter of course. The PCGG-Benedicto agreement was thoroughly and, at times, disputatiously
discussed before the respondent court. There could be no deception or misrepresentation foisted on either the
PCGG or the Sandiganbayan.[86]
 In addition, the new PCGG Chairman originally prayed for the re-negotiation of the compromise agreement so
that it could be more just, fair, and equitable, an action considered by this Court as an implied admission that the
agreement was not contrary to law, public policy or morals nor was there any circumstance which had vitiated
consent.[87]
The above-mentioned circumstances strongly supported the validity of the compromise agreement in Republic
v. Sandiganbayan, which was why this Court refused to set it aside. Unfortunately for the petitioners in the present
case, the same cannot be said herein.
The Court of Appeals, in upholding the jurisdiction of the CTA to set aside the compromise agreement, ruled
that:
We are unable to accept petitioners submissions. Its formulation of the issues on CIR and CTAs lack of jurisdiction
to disturb a compromise agreement presupposes a compromise agreement validly entered into by the CIR and not,
when as in this case, it was indubitably shown that the supposed compromise agreement is without legal support.
In case of arbitrary or capricious exercise by the Commissioner or if the proceedings were fatally defective, the
compromise can be attacked and reversed through the judicial process (Meralco Securities Corporation v.
Savellano, 117 SCRA 805, 812 [1982]; Sarah E. Ramsay, et. al. v. U.S. 21 Ct. C1 443, affd 120 U.S. 214, 30 L. Ed.
582; Tyson v. U.S., 39 F. Supp. 135 cited in page 18 of decision) .[88]
Although the general rule is that compromises are to be favored, and that compromises entered into in good
faith cannot be set aside,[89] this rule is not without qualification. A court may still reject a compromise or settlement
when it is repugnant to law, morals, good customs, public order, or public policy. [90]
The compromise agreement between the BIR and PNOC was contrary to law having been entered into by BIR
Commissioner Tan in excess or in abuse of the authority granted to him by legislation. E.O. No. 44 and the NIRC of
1977, as amended, had identified the situations wherein the BIR Commissioner may compromise tax liabilities, and
none of these situations existed in this case.
The compromise, moreover, was contrary to public policy. The primary duty of the BIR is to collect taxes, since
taxes are the lifeblood of the Government and their prompt and certain availability are imperious needs. [91] In the
present case, however, BIR Commissioner Tan, by entering into the compromise agreement that was bereft of any
legal basis, would have caused the Government to lose almost P300 million in tax revenues and would have
deprived the Government of much needed monetary resources.
Allegations of good faith and previous execution of the terms of the compromise agreement on the part of
PNOC would not be enough for this Court to disregard the demands of law and public policy. Compromise may be
the favored method to settle disputes, but when it involves taxes, it may be subject to closer scrutiny by the courts.
A compromise agreement involving taxes would affect not just the taxpayer and the BIR, but also the whole nation,
the ultimate beneficiary of the tax revenues collected.
F. The Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents.
The new BIR Commissioner, Commissioner Ong, had acted well within his powers when he set aside the
compromise agreement, dated 22 June 1987, after finding that the said compromise agreement was without legal
basis. When he took over from his predecessor, there was still a pending motion for reconsideration of the said
compromise agreement, filed by private respondent Savellano on 24 March 1988. To resolve the said motion, he
reviewed the compromise agreement and, thereafter, came upon the conclusion that it did not comply with E.O. No.
44 and its implementing rules and regulations.
It had been declared by this Court in Hilado v. Collector of Internal Revenue, et al.,[92] that an administrative
officer, such as the BIR Commissioner, may revoke, repeal or abrogate the acts or previous rulings of his
predecessor in office. The construction of a statute by those administering it is not binding on their successors if,
thereafter, the latter becomes satisfied that a different construction should be given.
It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O. No. 44 and its
implementing rules and regulations differently from that of his predecessor, former Commissioner Tan, which led to
Commissioner Ongs revocation of the BIR approval of the compromise agreement, dated 22 June 1987. Such a
revocation was only proper considering that the former BIR Commissioners decision to approve the said
compromise agreement was based on the erroneous construction of the law (i.e., E.O. No. 44 and its implementing
rules and regulations) and should not give rise to any vested right on PNOC. [93]
Furthermore, approval of the compromise agreement and acceptance of the compromise payment by his
predecessor cannot estop BIR Commissioner Ong from setting aside the compromise agreement, dated 22 June
1987, for lack of legal basis; and from demanding payment of the deficiency withholding tax from PNB. As a
general rule, the Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of
its agents[94] because:
. . . Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should
not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to
suffer individually on account of his own negligence, the presumption being that they take good care of their
personal affairs. This should not hold true to government officials with respect to matters not of their own personal
concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the
principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761,
Benevolent and Protective Order of the Elks, Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA
162; Sy vs. Central Bank of the Philippines, L-41480, April 30, 1976, 70 SCRA 571; Balmaceda vs. Corominas &
Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus
Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841, January 27, 1969,
26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs.
Collector of Internal Revenue, L-23041, July 31, 1969, 28 SCRA 119).[95]
III
Finality of the Tax Assessment
A. The issue on whether the BIR complied with the notice requirements under RR No. 12-85 is raised for the first
time on appeal and should not be given due course.
PNB, in another effort to block the collection of the deficiency withholding tax, this time raises doubts as to the
validity of the deficiency withholding tax assessment issued against it on 16 January 1991. It submits that the BIR
failed to comply with the notice requirements set forth in RR No. 12-85.[96]
Whether or not the BIR complied with the notice requirements of RR No. 12-85 is a new issue raised by PNB
only before this Court. Such a question has not been ventilated before the lower courts. For an appellate tribunal to
consider a legal question, it should have been raised in the court below. [97] If raised earlier, the matter would have
been seriously delved into by the CTA and the Court of Appeals. [98]
B. The assessment against PNB had become final and unappealable, and therefore, enforceable.
The CTA and the Court of Appeals declared as final and unappealable, and thus, enforceable, the assessment
against PNB, dated 16 January 1991, since PNB failed to protest said assessment within the 30-day prescribed
period. This Court, though, finds that the significant BIR assessment, as far as this case is concerned, should be
the one issued by the BIR against PNB on 08 October 1986.
The BIR issued on 08 October 1986 an assessment against PNB for its withholding tax liability on the interest
earnings and/or yields from PNOCs money placements with the bank. It had 30 days from receipt to protest the
BIRs assessment. [99] PNB, however, did not take any action as to the said assessment so that upon the lapse of
the period to protest, the withholding tax assessment against it, dated 8 October 1986, became final and
unappealable, and could no longer be disputed.[100] The courts may therefore order the enforcement of this
assessment.
It is the enforcement of this BIR assessment against PNB, dated 08 October 1986, that is in issue in the
instant case. If the compromise agreement is valid, it would effectively bar the BIR from enforcing the assessment
and collecting the assessed tax; on the other hand, if the compromise agreement is void, then the courts can order
the BIR to enforce the assessment and collect the assessed tax.
As has been previously discussed by this Court, the BIR demand letter, dated 16 January 1991, is not a new
assessment against PNB. It only demanded from PNB the payment of the balance of the withholding tax assessed
against it on 08 October 1986. The same demand letter also has no substantial effect or impact on the resolution of
the present case. It is already unnecessary and superfluous, having been issued by the BIR when CTA Case No.
4249 was already pending before the CTA. At best, the demand letter, dated 16 January 1991, constitute a useful
reference for the courts in computing the balance of PNBs tax liability, after applying as partial payment thereon the
amount previously received by the BIR from PNOC pursuant to the compromise agreement.
IV
Prescription
A. The defense of prescription was never raised by petitioners PNOC and PNB, and should be considered waived.
 The dissenting opinion takes the position that the right of the BIR to assess and collect income tax on the
interest earnings and/or yields from PNOCs money placements with PNB, particularly for taxable year 1985, had
already prescribed, based on Section 268 of the NIRC of 1977, as amended.
Section 268 of the NIRC of 1977, as amended, provides a three-year period of limitation for the assessment
and collection of internal revenue taxes, which begins to run after the last day prescribed for filing of the return. [101]
The dissenting opinion points out that more than four years have elapsed from 25 January 1986 (the last day
prescribed by law for PNB to file its withholding tax return for the fourth quarter of 1985) to 16 January 1991 (the
date when the alleged final assessment of PNBs tax liability was issued).
The issue of prescription, however, was brought up only in the dissenting opinion and was never raised by
PNOC and PNB in the proceedings before the BIR nor in any of their pleadings submitted to the CTA and the Court
of Appeals.
Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on defenses and objections not pleaded,
and reads:
SECTION 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there is another action pending between the
parties for the same cause, or that the action is barred by prior judgment or by the statute of limitations, the court
shall dismiss the claim.
The general rule enunciated in the above-quoted provision governs the present case, that is, the defense of
prescription, not pleaded in a motion to dismiss or in the answer, is deemed waived. The exception in same
provision cannot be applied herein because the pleadings and the evidence on record do not sufficiently show that
the action is barred by prescription.
It has been consistently held in earlier tax cases that the defense of prescription of the period for the
assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded
and the facts alleged and evidences submitted by the parties were not sufficient to support a finding by this Court
on the matter.[102] In Querol v. Collector of Internal Revenue,[103] this Court pronounced that prescription, being a
matter of defense, imposes the burden on the taxpayer to prove that the full period of the limitation has expired; and
this requires him to positively establish the date when the period started running and when the same was fully
accomplished.
In making its conclusion that the assessment and collection in this case had prescribed, the dissenting opinion
took liberties to assume the following facts even in the absence of allegations and evidences to the effect that: (1)
PNB filed returns for its withholding tax obligations for taxable year 1985; (2) PNB reported in the said returns the
interest earnings of PNOCs money placements with the bank; and (3) that the returns were filed on or before the
prescribed date, which was 25 January 1986.
It is not safe to adopt the first and second assumptions in this case considering that Section 269 of the NIRC
of 1977, as amended, provides for a different period of limitation for assessment and collection of taxes in case of
false or fraudulent return or for failure to file a return. In such cases, the BIR is given 10 years after discovery of the
falsity, fraud, or omission within which to make an assessment.[104]
It is also not safe to accept the third assumption since there can be a possibility that PNB filed the withholding
tax return later than the prescribed date, in which case, following the dictates of Section 268 of the NIRC of 1977,
as amended, the three-year prescriptive period shall be counted from the date the return was actually filed. [105]
PNBs withholding tax returns for taxable year 1985, duly received by the BIR, would have been the best
evidence to prove actual filing, the date of filing and the contents thereof. These facts are relevant in determining
which prescriptive period should apply, and when such prescriptive period should begin to run and when it had
lapsed. Yet, the pleadings did not refer to any return, and no return was made part of the records of the present
case.
This Court could not make a proper ruling on the matter of prescription on the mere basis of assumptions;
such an issue should have been properly raised, argued, and supported by evidences submitted by the parties
themselves before the BIR and the courts below.
B. Granting that this Court can take cognizance of the defense of prescription, this Court finds that the assessment
of the withholding tax liability against PNOC and collection of the tax assessed were done within the
prescriptive period.
 Assuming, for the sake of argument, that this Court can give due course to the defense of prescription, it finds
that the assessment against PNB for its withholding tax liability for taxable year 1985 and the collection of the tax
assessed therein were accomplished within the prescribed periods for assessment and collection under the NIRC
of 1977, as amended.
If this Court adopts the assumption made by the dissenting opinion that PNB filed its withholding tax return for
the last quarter of 1985 on 25 January 1986, then the BIR had until 24 January 1989 to assess PNB. The original
assessment against PNB was issued as early as 08 October 1986, well-within the three-year prescriptive period for
making the assessment as prescribed by the following provisions of the NIRC of 1977, as amended:
SEC. 268. Period of limitation upon assessment and collection. Except as provided in the succeeding section,
internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the
expiration of such period
SEC. 269. Exceptions as to period of limitation of assessment and collection of taxes.
(c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be
collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.
Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunction with one another.
Section 268 requires that assessment be made within three years from the last day prescribed by law for the filing
of the return. Section 269(c), on the other hand, provides that when an assessment is issued within the prescribed
period provided in Section 268, the BIR has three years, counted from the date of the assessment, to collect the tax
assessed either by distraint, levy or court action. Therefore, when an assessment is timely issued in accordance
with Section 268, the BIR is given another three-year period, under Section 269(c), within which to collect the tax
assessed, reckoned from the date of the assessment.
In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986, so that the BIR had
until 07 October 1989 to enforce it and to collect the tax assessed. The filing, however, by private respondent
Savellano of his Amended Petition for Review before the CTA on 02 July 1988 already constituted a judicial action
for collection of the tax assessed which stops the running of the three-year prescriptive period for collection thereof.
A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper regular
trial court; or where the assessment is appealed to the CTA, by filing an answer to the taxpayers petition for review
wherein payment of the tax is prayed for.[106]
The present case is unique, however, because the Petition for Review was filed by private respondent
Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the collecting government agency; PNOC, the
taxpayer; and PNB, the withholding agent, initially found themselves on the same side. The prayer in the Amended
Petition for Review of private respondent Savellano reads:
WHEREFORE, in view of the foregoing, petitioner respectfully prays that the compromise agreement of June 22,
1987 be reviewed and declared null and void, and that this Court directs:
a) respondent Commissioner to enforce and collect and respondents PNB and/or PNOC to pay in a joint and
several capacity, the total tax liability of P387,987,785.73, plus interests from 31 October 1986; and
b) respondent Commissioner to pay unto petitioner, as informers reward, 15% of the tax liability collected under
clause (a) hereof.
Other equitable reliefs under the premises are likewise prayed for.[107] (Underscoring ours.)
Private respondent Savellano, in his Amended Petition for Review in CTA Case No. 4249, prayed for (1) the
CTA to direct the BIR Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax
making CTA Case No. 4249 a collection case. That the Amended Petition for Review was filed by the informer and
not the taxpayer; and that the prayer for the enforcement of the tax assessment and payment of the tax was also
made by the informer, not the BIR, should not affect the nature of the case as a judicial action for collection. In case
the CTA grants the Petition and the prayer therein, as what has happened in the present case, the ultimate result
would be the collection of the tax assessed. Consequently, upon the filing of the Amended Petition for Review by
private respondent Savellano, judicial action for collection of the tax had been initiated and the running of the
prescriptive period for collection of the said tax was terminated.
Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive period
for the collection of the tax, CTA Case No. 4249, at the very least, suspends the running of the said prescriptive
period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect
deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning
a distraint or levy or instituting a proceeding in court, and for 60 days thereafter. [108] Just as in the cases of Republic
v. Ker & Co., Ltd.[109] and Protectors Services, Inc. v. Court of Appeals,[110] this Court declares herein that the
pendency of the present case before the CTA, the Court of Appeals and this Court, legally prevents the BIR
Commissioner from instituting an action for collection of the same tax liabilities assessed against PNOC and PNB in
the CTA or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of
suits and the rule on lis pendens.
Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, the informer, instead of
PNOC, the taxpayer, or PNB, the withholding agent, would not prevent the suspension of the running of the
prescriptive period for collection of the tax. What is controlling herein is the fact that the BIR Commissioner cannot
file a judicial action in any other court for the collection of the tax because such a case would necessarily involve
the same parties and involve the same issues already being litigated before the CTA in CTA Case No. 4249. The
three-year prescriptive period for collection of the tax shall commence to run only after the promulgation of the
decision of this Court in which the issues of the present case are resolved with finality.
Whether the filing of the Amended Petition for Review by private respondent Savellano entirely stops or merely
suspends the running of the prescriptive period for collection of the tax, it had been premature for the BIR
Commissioner to issue a writ of garnishment against PNB on 12 August 1991 and for the Central Bank of the
Philippines to debit the account of PNB on 02 September 1992 pursuant to the said writ, because the case was by
then, pending review by the Court of Appeals. However, since this Court already finds that the compromise
agreement is without force and effect and hereby orders the enforcement of the assessment against PNB, then,
any issue or controversy arising from the premature garnishment of PNBs account and collection of the tax by the
BIR has become moot and academic at this point.
V
Additional Informers Reward
Private respondent Savellano is entitled to additional informers reward since the BIR had already collected the full
amount of the tax assessment against PNB.
PNOC insists that private respondent Savellano is not entitled to additional informers reward because there
was no voluntary payment of the withholding tax liability. PNOC, however, fails to state any legal basis for its
argument.
Section 316(1) of the NIRC of 1977, as amended, granted a reward to an informer equivalent to 15% of the
revenues, surcharges, or fees recovered, plus, any fine or penalty imposed and collected. [111] The provision was
clear and uncomplicated an informer was entitled to a reward of 15% of the total amount actually recovered or
collected by the BIR based on his information. The provision did not make any distinction as to the manner the tax
liability was collected whether it was through voluntary payment by the taxpayer or through garnishment of the
taxpayers property. Applicable herein is another well-known maxim in statutory construction Ubi lex non distinguit
nec nos distinguere debemos when the law does not distinguish, we should not distinguish. [112]
Pursuant to the writ of garnishment issued by the BIR, the Central Bank issued a debit advice against the
demand deposit account of PNB with the Central Bank for the amount of P294,958,450.73, and credited the same
amount to the demand deposit account of the Treasurer of the Republic of the Philippines. The Treasurer of the
Republic, in turn, already issued a journal voucher transferring P294,958,450.73 to the account of the BIR.
Since the BIR had already collected P294,958,450.73 from PNB through the execution of the writ of
garnishment over PNBs deposit with the Central Bank, then private respondent Savellano should be awarded 15%
thereof as reward since the said collection could still be traced to the information he had given.
WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No. 109976 and G.R. No.
112800, respectively, are hereby DENIED. This Court AFFIRMS the assailed Decisions of the Court of Appeals in
CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526, which affirmed the decision of the CTA in CTA Case No. 4249,
with modifications, to wit:
(1) The compromise agreement between PNOC and the BIR, dated 22 June 1987, is declared void for being
contrary to law and public policy, and is without force and effect;
(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;
(3)The withholding tax assessment against PNB, dated 08 October 1986, had become final and unappealable. The
BIR Commissioner is ordered to enforce the said assessment and collect the amount of P294,958,450.73,
 the balance of tax assessed after crediting the previous payment made by PNOC pursuant to the
compromise agreement, dated 22 June 1987; and
(4) Private respondent Savellano shall be paid the remainder of his informers reward, equivalent to 15% of the
deficiency withholding tax ordered collected herein, or P 44,243,767.61.
SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE vs. SOLIDBANK CORPORATION

G.R. No. 148191. November 25, 2003

DECISION
Under the Tax Code, the earnings of banks from passive income are subject to a twenty percent final
withholding tax (20% FWT). This tax is withheld at source and is thus not actuallyand physically received by the
banks, because it is paid directly to the government by the entities from which the banks derived the income. Apart
from the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is imposed by the
Tax Code on their gross receipts, including the passive income.
Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings,
it follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in
satisfaction of their withholding taxes. That they do not actually receive the amount does not alter the fact that it is
remitted for their benefit in satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20
percent portion of the passive income of banks would actually be paid to the banks and then remitted by them to
the government in payment of their income tax. The institution of the withholding tax system does not alter the fact
that the 20 percent portion of their passive income constitutes part of their actual earnings, except that it is paid
directly to the government on their behalf in satisfaction of the 20 percent final income tax due on their passive
incomes.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to annul the July 18,
2000 Decision[2] and the May 8, 2001 Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP No. 54599. The
decretal portion of the assailed Decision reads as follows:
WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court of Tax Appeals.[5]
The challenged Resolution denied petitioners Motion for Reconsideration.
The Facts
Quoting petitioner, the CA[6] summarized the facts of this case as follows:
For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage Tax Returns reflecting gross
receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount of P1,474,691,693.44 with
corresponding gross receipts tax payments in the sum of P73,734,584.60, broken down as follows:
Period Covered Gross Receipts Gross Receipts Tax
January to March 1994 P 188,406,061.95 P 9,420,303.10
April to June 1994 370,913,832.70 18,545,691.63
July to September 1994 481,501,838.98 24,075,091.95
October to December 1994 433,869,959.81 21,693,497.98
Total P 1,474,691,693.44 P 73,734,584.60
[Respondent] alleges that the total gross receipts in the amount of P1,474,691,693.44 included the sum
of P350,807,875.15 representing gross receipts from passive income which was already subjected to 20% final
withholding tax.
On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case No. 4720 entitled Asian Bank
Corporation vs. Commissioner of Internal Revenue[,] wherein it was held that the 20% final withholding tax on [a]
banks interest income should not form part of its taxable gross receipts for purposes of computing the gross
receipts tax.
On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed with the Bureau of Internal
Revenue [BIR] a letter-request for the refund or issuance of [a] tax credit certificate in the aggregate amount
of P3,508,078.75, representing allegedly overpaid gross receipts tax for the year 1995, computed as follows:
Gross Receipts Subjected to the Final Tax
Derived from Passive [Income] P 350,807,875.15
Multiply by Final Tax rate 20%
20% Final Tax Withheld at Source P 70,161,575.03
Multiply by [Gross Receipts Tax] rate 5%
Overpaid [Gross Receipts Tax] P 3,508,078.75
Without waiting for an action from the [petitioner], [respondent] on the same day filed [a] petition for review [with the
Court of Tax Appeals] in order to toll the running of the two-year prescriptive period to judicially claim for the refund
of [any] overpaid internal revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code [also National Internal
Revenue Code] x x x.
xxxxxxxxx
After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its decision ordering x x x
petitioner to refund in favor of x x x respondent the reduced amount of P1,555,749.65 as overpaid [gross receipts
tax] for the year 1995. The legal issue x x x was resolved by the [Court of Tax Appeals], with Hon. Amancio Q.
Saga dissenting, on the strength of its earlier pronouncement in x x x Asian Bank Corporation vs. Commissioner of
Internal Revenue x x x, wherein it was held that the 20% [final withholding tax] on [a] banks interest income should
not form part of its taxable gross receipts for purposes of computing the [gross receipts tax]. [7]
Ruling of the CA
The CA held that the 20% FWT on a banks interest income did not form part of the taxable gross receipts in
computing the 5% GRT, because the FWT was not actually received by the bank but was directly remitted to the
government. The appellate court curtly said that while the Tax Code does not specifically state any exemption, x x x
the statute must receive a sensible construction such as will give effect to the legislative intention, and so as to
avoid an unjust or absurd conclusion.[8]
Hence, this appeal.[9]
Issue
Petitioner raises this lone issue for our consideration:
Whether or not the 20% final withholding tax on [a] banks interest income forms part of the taxable gross receipts in
computing the 5% gross receipts tax.[10]
The Courts Ruling
The Petition is meritorious.
Sole Issue:
Whether the 20% FWT Forms Part
of the Taxable Gross Receipts
Petitioner claims that although the 20% FWT on respondents interest income was not actually received by
respondent because it was remitted directly to the government, the fact that the amount redounded to the banks
benefit makes it part of the taxable gross receipts in computing the 5% GRT. Respondent, on the other hand,
maintains that the CA correctly ruled otherwise.
We agree with petitioner. In fact, the same issue has been raised recently in China Banking Corporation v.
CA,[11] where this Court held that the amount of interest income withheld in payment of the 20% FWT forms part of
gross receipts in computing for the GRT on banks.
The FWT and the GRT:
Two Different Taxes
 The 5% GRT is imposed by Section 119[12] of the Tax Code,[13] which provides:
SEC. 119. Tax on banks and non-bank financial intermediaries. There shall be collected a tax on gross receipts
derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with
the following schedule:
(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the
basis of remaining maturities of instruments from which such receipts are derived.
Short-term maturity not in excess of two (2) years5%
Medium-term maturity over two (2) years
but not exceeding four (4) years....3%
Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years1%
(ii) Over seven (7) years..0%
(b) On dividends...0%
(c) On royalties, rentals of property, real or personal, profits from exchange and all other items
treated as gross income under Section 28[14] of this
Code....................................................................5%
Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pretermination,
then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the
transaction as short, medium or long term and the correct rate of tax shall be applied accordingly.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar banking activities.
The 5% GRT[15] is included under Title V. Other Percentage Taxes of the Tax Code and is not subject to
withholding. The banks and non-bank financial intermediaries liable therefor shall, under Section 125(a)(1), [16] file
quarterly returns on the amount of gross receipts and pay the taxes due thereon within twenty (20)[17] days after the
end of each taxable quarter.
The 20% FWT,[18] on the other hand, falls under Section 24(e)(1)[19] of Title II. Tax on Income. It is a tax on
passive income, deducted and withheld at source by the payor-corporation and/or person as withholding agent
pursuant to Section 50,[20] and paid in the same manner and subject to the same conditions as provided for in
Section 51.[21]
A perusal of these provisions clearly shows that two types of taxes are involved in the present controversy: (1)
the GRT, which is a percentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered by
both taxes.
A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in
the sale of services.[22] It is not subject to withholding.
An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a
taxable year.[23] It is subject to withholding.
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed; the payor, a
separate entity, acts as no more than an agent of the government for the collection of the tax in order to ensure its
payment. Obviously, this amount that is used to settle the tax liability is deemed sourced from the proceeds
constitutive of the tax base.[24] These proceeds are either actual or constructive. Both parties herein agree that
there is no actual receipt by the bank of the amount withheld. What needs to be determined is if there
is constructive receipt thereof. Since the payee -- not the payor -- is the real taxpayer, the rule on constructive
receipt can be easily rationalized, if not made clearly manifest.[25]
Constructive Receipt
Versus Actual Receipt
 Applying Section 7 of Revenue Regulations (RR) No. 17-84,[26] petitioner contends that there
is constructive receipt of the interest on deposits and yield on deposit substitutes. [27]Respondent, however, claims
that even if there is, it is Section 4(e) of RR 12-80[28] that nevertheless governs the situation.
Section 7 of RR 17-84 states:
SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes.
(a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to the
withholding taxes in accordance with these regulations need not be included in the gross income in computing the
depositors/investors income tax liability in accordance with the provision of Section 29(b), [29] (c)[30] and (d) of the
National Internal Revenue Code, as amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for purposes of
imposing the withholding taxes in accordance with these regulations shall be allowed as interest expense
deductible for purposes of computing taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as
part of the tax base upon which the gross receipt[s] tax is imposed.
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on the gross receipts of
banks, non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries not
performing quasi-banking activities shall be based on all items of income actually received. This provision reads:
SEC. 4. x x x x x x x x x
(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank
financial intermediaries not performing quasi-banking activities. The rates of tax to be imposed on the gross
receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall not
be considered, but once payment is received on such accrual or in cases of prepayment, then the amount actually
received shall be included in the tax base of such financial institutions, as provided hereunder x x x.
Respondent argues that the above-quoted provision is plain and clear: since there is no actual receipt, the
FWT is not to be included in the tax base for computing the GRT. There is supposedly no pecuniary benefit or
advantage accruing to the bank from the FWT, because the income is subjected to a tax burden immediately upon
receipt through the withholding process. Moreover, the earlier RR 12-80 covered matters not falling under
the later RR 17-84.[31]
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in
Articles 531 and 532 of our Civil Code.
Under Article 531:[32]
Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject
to the action of our will, or by the proper acts and legal formalities established for acquiring such right.
Article 532 states:
Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by
any person without any power whatever; but in the last case, the possession shall not be considered as acquired
until the person in whose name the act of possession was executed has ratified the same, without prejudice to the
juridical consequences of negotiorum gestio in a proper case.[33]
The last means of acquiring possession under Article 531 refers to juridical acts -- the acquisition of
possession by sufficient title to which the law gives the force of acts of possession.[34] Respondent argues that only
items of income actually received should be included in its gross receipts. It claims that since the amount had
already been withheld at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is
through the proper acts and legal formalities established therefor. The withholding process is one such act. There
may not be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person
without any power whatsoever shall be considered as acquired when ratified by the person in whose name the act
of possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding agent of the
government, because the taxpayer ratifies the very act of possession for the government. There is
thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits and yield on
deposit substitutes that are subjected to FWT are indeed -- for legal purposes -- tantamount to delivery, receipt or
remittance.[35] Besides, respondent itself admits that its income is subjected to a tax burden immediately upon
receipt, although it claims that it derives no pecuniary benefit or advantage through the withholding process. There
being constructive receipt of such income -- part of which is withheld -- RR 17-84 applies, and that income is
included as part of the tax base upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income constructively received.
In general, rules and regulations issued by administrative or executive officers pursuant to the procedure or
authority conferred by law upon the administrative agency have the force and effect, or partake of the nature, of a
statute.[36] The reason is that statutes express the policies, purposes, objectives, remedies and sanctions intended
by the legislature in general terms. The details and manner of carrying them out are oftentimes left to the
administrative agency entrusted with their enforcement.
In the present case, it is the finance secretary who promulgates the revenue regulations, upon
recommendation of the BIR commissioner. These regulations are the consequences of a delegated power to issue
legal provisions that have the effect of law.[37]
A revenue regulation is binding on the courts as long as the procedure fixed for its promulgation is
followed. Even if the courts may not be in agreement with its stated policy or innate wisdom, it is nonetheless valid,
provided that its scope is within the statutory authority or standard granted by the legislature. [38] Specifically, the
regulation must (1) be germane to the object and purpose of the law; [39] (2) not contradict, but conform to, the
standards the law prescribes;[40] and (3) be issued for the sole purpose of carrying into effect the general provisions
of our tax laws.[41]
In the present case, there is no question about the regularity in the performance of official duty. What needs to
be determined is whether RR 12-80 has been repealed by RR 17-84.
A repeal may be express or implied. It is express when there is a declaration in a regulation -- usually in its
repealing clause -- that another regulation, identified by its number or title, is repealed. All others are implied
repeals.[42] An example of the latter is a general provision that predicates the intended repeal on a substantial
conflict between the existing and the prior regulations.[43]
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof that are inconsistent with
the provisions of the said RR are thereby repealed. This declaration proceeds on the premise that RR 17-84 clearly
reveals such an intention on the part of the Department of Finance. Otherwise, later RRs are to be construed as a
continuation of, and not a substitute for, earlier RRs; and will continue to speak, so far as the subject matter is the
same, from the time of the first promulgation.[44]
There are two well-settled categories of implied repeals: (1) in case the provisions are in irreconcilable conflict,
the later regulation, to the extent of the conflict, constitutes an implied repeal of an earlier one; and (2) if the later
regulation covers the whole subject of an earlier one and is clearly intended as a substitute, it will similarly operate as a
repeal of the earlier one.[45] There is no implied repeal of an earlier RR by the mere fact that its subject matter is related to a
later RR, which may simply be a cumulation or continuation of the earlier one.[46]
Where a part of an earlier regulation embracing the same subject as a later one may not be enforced without
nullifying the pertinent provision of the latter, the earlier regulation is deemed impliedly amended or modified to the
extent of the repugnancy.[47] The unaffected provisions or portions of the earlier regulation remain in force, while its
omitted portions are deemed repealed.[48] An exception therein that is amended by its subsequent elimination shall
now cease to be so and instead be included within the scope of the general rule.[49]
Section 4(e) of the earlier RR 12-80 provides that only items of income actually received shall be included in
the tax base for computing the GRT, but Section 7(c) of the later RR 17-84 makes no such distinction and provides
that all interests earned shall be included. The exception having been eliminated, the clear intent is that the later
RR 17-84 includes the exception within the scope of the general rule.
Repeals by implication are not favored and will not be indulged, unless it is manifest that the administrative
agency intended them. As a regulation is presumed to have been made with deliberation and full knowledge of all
existing rules on the subject, it may reasonably be concluded that its promulgation was not intended to interfere
with or abrogate any earlier rule relating to the same subject, unless it is either repugnant to or fully inclusive of the
subject matter of an earlier one, or unless the reason for the earlier one is beyond peradventure removed. [50] Every
effort must be exerted to make all regulations stand -- and a later rule will not operate as a repeal of an earlier one,
if by any reasonable construction, the two can be reconciled.[51]
RR 12-80 imposes the GRT only on all items of income actually received, as opposed to their mere accrual,
while RR 17-84 includes all interest income in computing the GRT. RR 12-80 is superseded by the later rule,
because Section 4(e) thereof is not restated in RR 17-84. Clearly therefore, as petitioner correctly states, this
particular provision was impliedly repealed when the later regulations took effect. [52]
Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondents reliance on Section 4(e) of RR 12-80 is
misplaced and deceptive. The accrual referred to therein should not be equated with the determination of the
amount to be used as tax base in computing the GRT. Such accrual merely refers to an accounting method that
recognizes income as earned although not received, and expenses as incurred although not yet paid.
Accrual should not be confused with the concept of constructive possession or receipt as earlier
discussed. Petitioner correctly points out that income that is merely accrued -- earned, but not yet received -- does
not form part of the taxable gross receipts; income that has been received, albeit constructively, does.[53]
The word actually, used confusingly in Section 4(e), will be clearer if removed entirely. Besides, if actually is
that important, accrual should have been eliminated for being a mere surplusage. The inclusion of accrual stresses
the fact that Section 4(e) does not distinguish between actual and constructive receipt. It merely focuses on the
method of accounting known as the accrual system.
Under this system, income is accrued or earned in the year in which the taxpayers right thereto becomes fixed
and definite, even though it may not be actually received until a later year; while a deduction for a liability is to be
accrued or incurred and taken when the liability becomes fixed and certain, even though it may not be actually paid
until later.[54]
Under any system of accounting, no duty or liability to pay an income tax upon a transaction arises until the
taxable year in which the event constituting the condition precedent occurs. [55] The liability to pay a tax may thus
arise at a certain time and the tax paid within another given time.[56]
In reconciling these two regulations, the earlier one includes in the tax base for GRT all income,
whether actually or constructively received, while the later one includes specifically interest income. In computing
the income tax liability, the only exception cited in the later regulations is the exclusion from gross income of
interest income, which is already subjected to withholding. This exception, however, refers to a different tax
altogether. To extend mischievously such exception to the GRT will certainly lead to results not contemplated by
the legislators and the administrative body promulgating the regulations.
Manila Jockey Club
Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club,[57] we held that the term gross receipts shall not
include money which, although delivered, has been especially earmarked by law or regulation for some person
other than the taxpayer.[58]
To begin, we have to nuance the definition of gross receipts[59] to determine what it is exactly. In this regard,
we note that US cases have persuasive effect in our jurisdiction, because Philippine income tax law is patterned
after its US counterpart.[60]
[G]ross receipts with respect to any period means the sum of: (a) The total amount received or accrued during such
period from the sale, exchange, or other disposition of x x x other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of its trade or business, and (b) The gross income, attributable
to a trade or business, regularly carried on by the taxpayer, received or accrued during such period x x x. [61]
x x x [B]y gross earnings from operations x x x was intended all operations xxx including incidental, subordinate,
and subsidiary operations, as well as principal operations.[62]
When we speak of the gross earnings of a person or corporation, we mean the entire earnings or receipts of such
person or corporation from the business or operations to which we refer. [63]
From these cases, gross receipts[64] refer to the total, as opposed to the net, income. [65] These are therefore
the total receipts before any deduction[66] for the expenses of management.[67] Websters New International
Dictionary, in fact, defines gross as whole or entire.
 Statutes taxing the gross receipts, earnings, or income of particular corporations are found in many
jurisdictions.[68] Tax thereon is generally held to be within the power of a state to impose; or constitutional, unless it
interferes with interstate commerce or violates the requirement as to uniformity of taxation. [69]
Moreover, we have emphasized that the BIR has consistently ruled that gross receipts does not admit of any
deduction.[70] Following the principle of legislative approval by reenactment, [71] this interpretation has been adopted
by the legislature throughout the various reenactments of then Section 119 of the Tax Code. [72]
Given that a tax is imposed upon total receipts and not upon net earnings, [73] shall the income withheld be
included in the tax base upon which such tax is imposed? In other words, shall interest
income constructively received still be included in the tax base for computing the GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this case. Earmarking is not the same
as withholding. Amounts earmarked do not form part of gross receipts, because, although delivered or received,
these are by law or regulation reserved for some person other than the taxpayer. On the contrary,
amounts withheld form part of gross receipts, because these are in constructivepossession and not subject to any
reservation, the withholding agent being merely a conduit in the collection process.
The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never
became the property of the race track.[74] Unlike these amounts, the interest income that had been withheld for the
government became property of the financial institutions upon constructive possession thereof. Possession was
indeed acquired, since it was ratified by the financial institutions in whose name the act of possession had been
executed. The money indeed belonged to the taxpayers; merely holding it in trust was not enough.[75]
The government subsequently becomes the owner of the money when the financial institutions pay the FWT to
extinguish their obligation to the government. As this Court has held before, this is the consideration for the transfer
of ownership of the FWT from these institutions to the government. [76] It is ownership that determines whether
interest income forms part of taxable gross receipts. [77] Being originally owned by these financial institutions as part
of their interest income, the FWT should form part of their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax liability, which is different from a percentage
tax liability. Commissioner of Internal Revenue v. Tours Specialists, Inc. aptly held thus:[78]
x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer
which do not belong to them and do not redound to the taxpayers benefit; and it is not necessary that there must be
a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the
Tax Code.[79]
In the construction and interpretation of tax statutes and of statutes in general, the primary consideration is to
ascertain and give effect to the intention of the legislature.[80] We ought to impute to the lawmaking body the intent
to obey the constitutional mandate, as long as its enactments fairly admit of such construction.[81] In fact, x x x no
tax can be levied without express authority of law, but the statutes are to receive a reasonable construction with a
view to carrying out their purpose and intent.[82]
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first imposes an income tax;
the second, a percentage tax. The legislature clearly intended two different taxes. The FWT is a tax on passive
income, while the GRT is on business.[83] The withholding of one is not equivalent to the payment of the other.
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd
Taxing the people and their property is essential to the very existence of government. Certainly, one of the
highest attributes of sovereignty is the power of taxation,[84] which may legitimately be exercised on the objects to
which it is applicable to the utmost extent as the government may choose. [85] Being an incident of sovereignty, such
power is coextensive with that to which it is an incident. [86] The interest on deposits and yield on deposit substitutes
of financial institutions, on the one hand, and their business as such, on the other, are the two objects over which
the State has chosen to extend its sovereign power. Those not so chosen are, upon the soundest principles,
exempt from taxation.[87]
While courts will not enlarge by construction the governments power of taxation, [88] neither will they place upon
tax laws so loose a construction as to permit evasions, merely on the basis of fanciful and insubstantial
distinctions.[89] When the legislature imposes a tax on income and another on business, the imposition must be
respected. The Tax Code should be so construed, if need be, as to avoid empty declarations or possibilities of
crafty tax evasion schemes. We have consistently ruled thus:
x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means to carry on its operations, and it is
of the utmost importance that the modes adopted to enforce the collection of the taxes levied should be summary
and interfered with as little as possible. x x x.[90]
Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange
the operations of government, and thereby cause serious detriment to the public. [91]
No government could exist if all litigants were permitted to delay the collection of its taxes. [92]
A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its
language.[93] Its clarity and implied intent must exist to uphold the taxes as against a taxpayer in whose favor doubts
will be resolved.[94] No such doubts exist with respect to the Tax Code, because the income and percentage taxes
we have cited earlier have been imposed in clear and express language for that purpose.[95]
This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the application of the
law according to its express terms -- construction and interpretation being called for only when such literal
application is impossible or inadequate without them. [96] In Quijano v. Development Bank of the Philippines,[97] we
stressed as follows:
No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for
application. [98]
A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to absurd results, or
contradict the evident meaning of the statute taken as a whole.[99] Unlike the CA, we find that the literal application
of the aforesaid sections of the Tax Code and its implementing regulations does not operate unjustly or contradict
the evident meaning of the statute taken as a whole. Neither does it lead to absurd results. Indeed, our courts are
not to give words meanings that would lead to absurd or unreasonable consequences.[100] We have repeatedly held
thus:
x x x [S]tatutes should receive a sensible construction, such as will give effect to the legislative intention and so as
to avoid an unjust or an absurd conclusion.[101]
While it is true that the contemporaneous construction placed upon a statute by executive officers whose duty is to
enforce it should be given great weight by the courts, still if such construction is so erroneous, x x x the same must
be declared as null and void.[102]
It does not even matter that the CTA, like in China Banking Corporation,[103] relied erroneously on Manila
Jockey Club. Under our tax system, the CTA acts as a highly specialized body specifically created for the purpose
of reviewing tax cases.[104] Because of its recognized expertise, its findings of fact will ordinarily not be reviewed,
absent any showing of gross error or abuse on its part. [105] Such findings are binding on the Court and, absent
strong reasons for us to delve into facts, only questions of law are open for determination.[106]
Respondent claims that it is entitled to a refund on the basis of excess GRT payments. We disagree.
Tax refunds are in the nature of tax exemptions.[107] Such exemptions are strictly construed against the
taxpayer, being highly disfavored[108] and almost said to be odious to the law.Hence, those who claim to be exempt
from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. They must
be able to point to some positive provision, not merely a vague implication, [109] of the law creating that right.[110]
The right of taxation will not be surrendered, except in words too plain to be mistaken. The reason is that the
State cannot strip itself of this highest attribute of sovereignty -- its most essential power of taxation -- by vague or
ambiguous language. Since tax refunds are in the nature of tax exemptions, these are deemed to be in derogation
of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption.[111]
No less than our 1987 Constitution provides for the mechanism for granting tax exemptions. [112] They certainly
cannot be granted by implication or mere administrative regulation. Thus, when an exemption is claimed, it must
indubitably be shown to exist, for every presumption is against it, [113] and a well-founded doubt is fatal to the
claim.[114] In the instant case, respondent has not been able to satisfactorily show that its FWT on interest income is
exempt from the GRT. Like China Banking Corporation, its argument creates a tax exemption where none
exists.[115]
No exemptions are normally allowed when a GRT is imposed. It is precisely designed to maintain simplicity in
the tax collection effort of the government and to assure its steady source of revenue even during an economic
slump.[116]
No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation, are different from each other. The basis of
their imposition may be the same, but their natures are different, thus leading us to a final point. Is there double
taxation?
The Court finds none.
Double taxation means taxing the same property twice when it should be taxed only once; that is, x x x taxing
the same person twice by the same jurisdiction for the same thing. [117] It is obnoxious when the taxpayer is taxed
twice, when it should be but once.[118] Otherwise described as direct duplicate taxation,[119] the two taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction,
during the same taxing period; and they must be of the same kind or character.[120]
First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the
passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject
matter of the GRT is the privilege of engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is an excise [121] rather than a
property tax.[122] It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed for
engaging in business and further taxed differently for the income derived therefrom. [123] Akin to our ruling in Velilla
v. Posadas,[124] these two taxes are entirely distinct and are assessed under different provisions.
Second, although both taxes are national in scope because they are imposed by the same taxing authority --
the national government under the Tax Code -- and operate within the same Philippine jurisdiction for the same
purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon
as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT
is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding,
while the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the
same jurisdiction, for the same purpose, in different taxing periods, some of the property in the
territory.[125] Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly
not double taxation.
WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are
hereby REVERSED and SET ASIDE. No costs.
SO ORDERED.

VICTORIAS MILLING COMPANY, INC. vs. SOCIAL SECURITY COMMISSION

G.R. No. L-16704 March 17, 1962

On October 15, 1958, the Social Security Commission issued its Circular No. 22 of the following tenor: .
Effective November 1, 1958, all Employers in computing the premiums due the System, will take into
consideration and include in the Employee's remuneration all bonuses and overtime pay, as well as the
cash value of other media of remuneration. All these will comprise the Employee's remuneration or
earnings, upon which the 3-1/2% and 2-1/2% contributions will be based, up to a maximum of P500 for any
one month.
Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through counsel, wrote the Social
Security Commission in effect protesting against the circular as contradictory to a previous Circular No. 7, dated
October 7, 1957 expressly excluding overtime pay and bonus in the computation of the employers' and employees'
respective monthly premium contributions, and submitting, "In order to assist your System in arriving at a
proper interpretationof the term 'compensation' for the purposes of" such computation, their observations on
Republic Act 1161 and its amendment and on the general interpretation of the words "compensation",
"remuneration" and "wages". Counsel further questioned the validity of the circular for lack of authority on the part
of the Social Security Commission to promulgate it without the approval of the President and for lack of publication
in the Official Gazette.
Overruling these objections, the Social Security Commission ruled that Circular No. 22 is not a rule or regulation
that needed the approval of the President and publication in the Official Gazette to be effective, but a mere
administrative interpretation of the statute, a mere statement of general policy or opinion as to how the law should
be construed.
Not satisfied with this ruling, petitioner comes to this Court on appeal.
The single issue involved in this appeal is whether or not Circular No. 22 is a rule or regulation, as contemplated in
Section 4(a) of Republic Act 1161 empowering the Social Security Commission "to adopt, amend and repeal
subject to the approval of the President such rules and regulations as may be necessary to carry out the provisions
and purposes of this Act."
There can be no doubt that there is a distinction between an administrative rule or regulation and an administrative
interpretation of a law whose enforcement is entrusted to an administrative body. When an administrative agency
promulgates rules and regulations, it "makes" a new law with the force and effect of a valid law, while when it
renders an opinion or gives a statement of policy, it merely interprets a pre-existing law (Parker, Administrative
Law, p. 197; Davis, Administrative Law, p. 194). Rules and regulations when promulgated in pursuance of the
procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute, and
compliance therewith may be enforced by a penal sanction provided in the law. This is so because statutes are
usually couched in general terms, after expressing the policy, purposes, objectives, remedies and sanctions
intended by the legislature. The details and the manner of carrying out the law are often times left to the
administrative agency entrusted with its enforcement. In this sense, it has been said that rules and regulations are
the product of a delegated power to create new or additional legal provisions that have the effect of law. (Davis, op.
cit., p. 194.) .
A rule is binding on the courts so long as the procedure fixed for its promulgation is followed and its scope is within
the statutory authority granted by the legislature, even if the courts are not in agreement with the policy stated
therein or its innate wisdom (Davis, op. cit., 195-197). On the other hand, administrative interpretation of the law is
at best merely advisory, for it is the courts that finally determine what the law means.
Circular No. 22 in question was issued by the Social Security Commission, in view of the amendment of the
provisions of the Social Security Law defining the term "compensation" contained in Section 8 (f) of Republic Act
No. 1161 which, before its amendment, reads as follows: .
(f) Compensation — All remuneration for employment include the cash value of any remuneration paid in
any medium other than cash except (1) that part of the remuneration in excess of P500 received during the
month; (2) bonuses, allowances or overtime pay; and (3) dismissal and all other payments which the
employer may make, although not legally required to do so.
Republic Act No. 1792 changed the definition of "compensation" to:
(f) Compensation — All remuneration for employment include the cash value of any remuneration paid in
any medium other than cash except that part of the remuneration in excess of P500.00 received during the
month.
It will thus be seen that whereas prior to the amendment, bonuses, allowances, and overtime pay given in addition
to the regular or base pay were expressly excluded, or exempted from the definition of the term "compensation",
such exemption or exclusion was deleted by the amendatory law. It thus became necessary for the Social Security
Commission to interpret the effect of such deletion or elimination. Circular No. 22 was, therefore, issued to apprise
those concerned of the interpretation or understanding of the Commission, of the law as amended, which it was its
duty to enforce. It did not add any duty or detail that was not already in the law as amended. It merely stated and
circularized the opinion of the Commission as to how the law should be construed. 1äwphï1.ñët
The case of People v. Jolliffe (G.R. No. L-9553, promulgated on May 30, 1959) cited by appellant, does not support
its contention that the circular in question is a rule or regulation. What was there said was merely that a regulation
may be incorporated in the form of a circular. Such statement simply meant that the substance and not the form of
a regulation is decisive in determining its nature. It does not lay down a general proposition of law that any circular,
regardless of its substance and even if it is only interpretative, constitutes a rule or regulation which must be
published in the Official Gazette before it could take effect.
The case of People v. Que Po Lay (50 O.G. 2850) also cited by appellant is not applicable to the present case,
because the penalty that may be incurred by employers and employees if they refuse to pay the corresponding
premiums on bonus, overtime pay, etc. which the employer pays to his employees, is not by reason of non-
compliance with Circular No. 22, but for violation of the specific legal provisions contained in Section 27(c) and (f) of
Republic Act No. 1161.
We find, therefore, that Circular No. 22 purports merely to advise employers-members of the System of what, in the
light of the amendment of the law, they should include in determining the monthly compensation of their employees
upon which the social security contributions should be based, and that such circular did not require presidential
approval and publication in the Official Gazette for its effectivity.
It hardly need be said that the Commission's interpretation of the amendment embodied in its Circular No. 22, is
correct. The express elimination among the exemptions excluded in the old law, of all bonuses, allowances and
overtime pay in the determination of the "compensation" paid to employees makes it imperative that such bonuses
and overtime pay must now be included in the employee's remuneration in pursuance of the amendatory law. It is
true that in previous cases, this Court has held that bonus is not demandable because it is not part of the wage,
salary, or compensation of the employee. But the question in the instant case is not whether bonus is demandable
or not as part of compensation, but whether, after the employer does, in fact, give or pay bonus to his employees,
such bonuses shall be considered compensation under the Social Security Act after they have been received by
the employees. While it is true that terms or words are to be interpreted in accordance with their well-accepted
meaning in law, nevertheless, when such term or word is specifically defined in a particular law, such interpretation
must be adopted in enforcing that particular law, for it can not be gainsaid that a particular phrase or term may have
one meaning for one purpose and another meaning for some other purpose. Such is the case that is now before us.
Republic Act 1161 specifically defined what "compensation" should mean "For the purposes of this Act". Republic
Act 1792 amended such definition by deleting same exemptions authorized in the original Act. By virtue of this
express substantial change in the phraseology of the law, whatever prior executive or judicial construction may
have been given to the phrase in question should give way to the clear mandate of the new law.
IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby affirmed, with costs against appellant. So
ordered.

RIZAL EMPIRE INSURANCE GROUP vs. NLRC

G.R. No. 73140 May 29, 1987

This is a petition for review on certiorari of the March 14, 1985 Decision of Labor Arbiter Teodorico L. Ruiz which
held that herein private respondent Rogelio R. Coria was illegally dismissed; and of the Resolution of the National
Labor Relations Commission which dismissed petitioner's appeal on the ground that the same was filed out of time.
In August, 1977, herein private respondent Rogelio R. Coria was hired by herein petitioner Rizal Empire Insurance
Group as a casual employee with a salary of P10.00 a day. On January 1, 1978, he was made a regular employee,
having been appointed as clerk-typist, with a monthly salary of P300.00. Being a permanent employee, he was
furnished a copy of petitioner company's "General Information, Office Behavior and Other Rules and Regulations."
In the same year, without change in his position-designation, he was transferred to the Claims Department and his
salary was increased to P450,00 a month. In 1980, he was transferred to the Underwriting Department and his
salary was increased to P580.00 a month plus cost of living allowance, until he was transferred to the Fire
Department as filing clerk. In July, 1983, he was made an inspector of the Fire Division with a monthly salary of
P685.00 plus allowances and other benefits.
On October 15, 1983, private respondent Rogelio R. Coria was dismissed from work, allegedly, on the grounds of
tardiness and unexcused absences. Accordingly, he filed a complaint with the Ministry of Labor and Employment
(MOLE), and in a Decision dated March 14, 1985 (Record, pp. 80-87), Labor Arbiter Teodorico L. Ruiz reinstated
him to his position with back wages. Petitioner filed an appeal with the National labor Relations Commission
(NLRC) but, in a Resolution dated November 15, 1985 (Ibid, pp. 31-32), the appeal was dismissed on the ground
that the same had been filed out of time. Hence, the instant petition (Ibid, pp. 2-22).
In compliance with the resolution of the Second Division of this Court dated April 30, 1986 (Ibid., p. 94), private
respondent filed his Comment on May 23, 1986 (Ibid., pp. 97-101) and public respondent on July 2, 1986 (Ibid., pp.
120-124).
On June 6, 1986, petitioners filed their Reply to private respondent's Comment (Ibid, pp. 102-105) and on July 25,
1986, their Reply to public respondent's Comment (Ibid., pp. 126-131).
In a Resolution dated August 18, 1986, the Second Division of this Court resolved to give due course to the petition
and to require the parties to submit their respective memoranda (Ibid., P. 132).
In compliance with the above mentioned Resolution, petitioners filed the,.r memorandum on November 10, 1986;
while private respondent filed his Memorandum on October 17, 1986 (Ibid, pp. 139-144), and public respondent on
November 16, 1986 (Ibid., pp. 160-166).
Before going however, into the merits of the case, an important point to consider is whether or not it is still within
the jurisdiction of this Court to review.
Rule VIII of the Revised Rules of the National Labor Relations Commission on appeal, provides:
SECTION 1. (a) Appeal. — Decision or orders of a labor Arbiter shall be final and executory unless
appealed to the Commission by any or both of the parties within ten (10) calendar days from
receipt of notice thereof.
xxx xxx xxx
SECTION 6. No extension of period. — No motion or request for extension of the period within
which to perfect an appeal shall be entertained.
The record shows that the employer (petitioner herein) received a copy of the decision of the Labor Arbiter on April
1, 1985. It filed a Motion for Extension of Time to File Memorandum of Appeal on April 11, 1985 and filed the
Memorandum of Appeal on April 22, 1985. Pursuant to the "no extension policy" of the National Labor Relations
Commission, aforesaid motion for extension of time was denied in its resolution dated November 15, 1985 and the
appeal was dismissed for having been filed out of time (Rollo, pp. 31-32).
Petitioners claim, among other things, that respondent Commission committed a grave abuse of discretion
amounting to lack of jurisdiction in arbitrarily dismissing petitioners' appeal on a technicality (Rollo, p. 9). It invokes
the Rules of Court provision on liberal construction of the Rules in the interest of substantial justice.
It will be noted however, that the foregoing provision refers to the Rules of Court. On the other hand, the Revised
Rules of the National Labor Relations Commission are clear and explicit and leave no room for interpretation.
Moreover, it is an elementary rule in administrative law that administrative regulations and policies enacted by
administrative bodies to interpret the law which they are entrusted to enforce, have the force of law, and are entitled
to great respect (Espanol v. Philippine Veterans Administration, 137 SCRA 314 [1985]).
Under the above-quoted provisions of the Revised NLRC Rules, the decision appealed from in this case has
become final and executory and can no longer be subject to appeal.
Even on the merits, the ruling of the Labor Arbiter appears to be correct; the consistent promotions in rank and
salary of the private respondent indicate he must have been a highly efficient worker, who should be retained
despite occasional lapses in punctuality and attendance. Perfection cannot after all be demanded.
WHEREFORE, this petition is DISMISSED.
SO ORDERED.

PHILIPPINE HEALTH INSURANCE CORPORATION vs. CHINESE GENERAL HOSPITAL AND MEDICAL
CENTER
G.R. No. 163123 April 15, 2005

DECISION
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the March 29, 2004
decision[1] of the Court of Appeals, the dispositive portion of which read:
FOR THE FOREGOING DISQUISITIONS, the petition is GRANTED, the Philippine Health Insurance
Corporation[2] is hereby ordered to give due course to petitioners, Chinese General Hospital and Medical Center,
claims for the period from 1989 to 1992, amounting to FOURTEEN MILLION TWO HUNDRED NINETY ONE
THOUSAND FIVE HUNDRED SIXTY EIGHT PESOS and 71/100 PESOS (P14,291,568.71). [3]
The facts, as culled by the Court of Appeals, follow.
On February 14, 1995, Republic Act No. 7875, otherwise known as An Act Instituting a National Health Insurance
Program for all Filipinos and Establishing the Philippine Health Insurance Corporation For the Purpose, was
approved and signed into law. As its guiding principle, it is provided in Section 2 thereof, thus:
Section 2. Declaration of Principles and Policies. Section 11, Article XIII of the Constitution of the Republic of the
Philippines declares that the state shall adopt an integrated and comprehensive approach to health development
which shall endeavor to make essential goods, health and other social services available to all the people at
affordable cost. Priority for the needs of the underprivileged, sick, elderly, disabled, women, and children should be
recognized. Likewise, it shall be the policy of the State to provide free medical care to paupers.
Prior to the enactment of R.A. 7875. CGH[4] had been an accredited health care provider under the Philippine
Medical Care Commission (PMCC), more popularly known as Medicare. As defined by R.A. 7875, a health care
provider refers to a health care institution, which is duly licensed and accredited devoted primarily to the
maintenance and operation of facilities for health promotion, prevention, diagnosis, treatment and care of
individuals suffering from illness, disease, injury, disability or deformity, or in need of obstetrical or other medical
and nursing care.[5]
As such, petitioner[6] filed its Medicare claims with the Social Security System (SSS), which, together with the
Government Service Insurance System (GSIS), administered the Health Insurance Fund of the PMMC. Thus,
petitioner filed its claim from 1989 to 1992 with the SSS, amounting to EIGHT MILLION ONE HUNDRED TWO
THOUSAND SEVEN HUNDRED EIGHTY-TWO and 10/100 (P8,102,782.10). Its application for the payment of its
claim with the SSS was overtaken by the passage of R.A. 7875, which in Section 51 and 52, provides:
SECTION 51. Merger. Within sixty (60) days from the promulgation of the implementing rules and regulations, all
functions and assets of the Philippine Medical Care Commission shall be merged with those of the Corporation
(PHILHEALTH) without need of conveyance, transfer or assignment. The PMCC shall thereafter cease to exist.
The liabilities of the PMCC shall be treated in accordance with existing laws and pertinent rules and regulations.
xxx
SECTION 52. Transfer of Health Insurance Funds of the SSS and GSIS. The Health Insurance Funds being
administered by the SSS and GSIS shall be transferred to the Corporation within sixty (60) days from the
promulgation of the implementing rules and regulations. The SSS and GSIS shall, however, continue to perform
Medicare functions under contract with the Corporation until such time that such functions are assumed by the
Corporation xxx.
Being the successor of the PMCC, PHILHEALTH, in compliance with the mandate of R.A. 7875,[7] promulgated the
rules and regulations implementing said act, Section 52 of which provides:
SECTION 52. Fee for Service Guidelines on Claims Payment. xxx b. All claims for payment of services rendered
shall be filed within sixty (60) calendar days from the date of discharge of the patient. Otherwise, the claim shall be
barred from payment except if the delay in the filing of thee claim is due to natural calamities and other fortuitous
events. If the claim is sent through mail, the date of the mailing as stamped by the post office of origin shall be
considered as the date of the filing.
If the delay in the filing is due to natural calamities or other fortuitous events, the health care provider shall be
accorded an extension period of sixty (60) calendar days.
If the delay in the filing of the claim is caused by the health care provider, and the Medicare benefits had already
been deducted, the claim will not be paid. If the claim is not yet deducted, it will be paid to the member chargeable
to the future claims of the health care provider.
Instead of giving due course to petitioners claims totaling to EIGHT MILLION ONE HUNDRED TWO THOUSAND
SEVEN HUNDRED EIGHTY-TWO and 10/100 (P8,102,782.10), only ONE MILLION THREE HUNDRED SIXTY-
FIVE THOUSAND FIVE HUNDRED FIFTY-SIX and 32/100 Pesos (1,365,556.32) was paid to petitioner,
representing its claims from 1989 to 1992 (sic).
Petitioner again filed its claims representing services rendered to its patients from 1998 to 1999, amounting to
SEVEN MILLION FIVE HUNDRED FIFTY FOUR THOUSAND THREE HUNDRED FORTY TWO and 93/100 Pesos
(P7,554,342.93). For being allegedly filed beyond the sixty (60) day period allowed by the implementing rules and
regulations, Section 52 thereof, petitioners claims were denied by the Claims Review Unit of Philhealth in its letter
dated January 14, 200, thus:
xxx
This pertains to your three hundred seventy three Philhealth medicare claims (373) which were primarily denied by
Claims Processing Department for late filing and for which you made an appeal to this office. We regret to inform
you that after thorough evaluation of your claims, [your] 361 medicare claims were DENIED, due to the fact that the
claims were filed 5 to 16 months after discharge. However, the remaining medicare claims have been forwarded to
Claims Processing Department (CPD) for payment.
SECTION 52 (B) Rule 52 (B) Rule VIII of the Implementing Rules and Regulations of 7875 provides that all claims
for payment of services rendered shall be filed within sixty (60) days from the day of discharge of the patient.
However, Philhealth Circular No, 31-A, series of 1998, state that all claims pending with Philhealth as of September
15, 1998 and claims with discharge dates from September to December 31, 1998 are given one hundred twenty
(120) days from the date of discharge to file their claim. In as much as we would like to grant your request for
reconsideration, the Corporation could no longer extend the period of filing xxx.
Petitioners claim was denied with finality by PHILHEALTH in its assailed decision dated June 6, 2000.
In a petition for review under Rule 43 of the Rules of Court, the Court of Appeals ordered herein petitioner
Philippine Health Insurance Corporation (Philhealth) to pay the claims in the amount of Fourteen Million Two
Hundred Ninety-one Thousand Five Hundred Sixty-eight Pesos and 71/100 (P14,291,568.71), principally on the
ground of liberal application of the 60-day rule under Section 52 of RA 7875s Implementing Rules and Regulations.
According to the Court of Appeals:
The avowed policy in the creation of a national health program is, as provided in Section 11, Article XIII of the 1987
Constitution, to adopt an integrated and comprehensive approach to health development which shall endeavor to
make essential goods, health and other social services available to all people at affordable cost. To assist the
state in pursuing this policy, hospitals and medical institutions such as herein petitioner are accredited to provide
health care. It is true, as aptly stated by the OGCC, that petitioner was not required by the government to take part
in its program, it did so voluntarily. But the fact that the government did not twist petitioners arm, so to speak, to
participate does not make petitioners participation in the program less commendable, considering that at rate
PHILHEALTH is denying claims of health care givers, it is more risky rather than providential for health care givers
to take part in the governments health program.
It is Our firmly held view that the policy of the state in creating a national health insurance program would be better
served by granting the instant petition. Thus, it is noteworthy to mention that health care givers are threatening to
boycott PHILHEALTH, reasoning that the claims approved by PHILHEALTH are not commensurate to the services
rendered by them to its members. Thus, how can these accredited health care givers be encouraged to serve an
increasing number of members when they end up on the losing end of this venture. We must admit that the costs of
operating these medical institutions cannot be taken lightly. They must also earn a modicum amount of profit in
order to operate properly.
Again, it is trite to emphasize that essentially, the purpose of the national health insurance program is to provide
members immediate medical care with the least amount of cash expended. Thus, with PHILHEALTH,
members/patients need only to present their card to prove their membership and the accredited health care giver is
mandated by law to provide the necessary medical assistance, said health care giver shouldering the PHILHEALTH
part of the bill. However, it is the members/patients who bear the brunt. Thus, they are made to shoulder the
PHILHEALTH part of the bill, and the refund thereof is subject to whether or not the claims of the health care
providers are approved by PHILHEALTH. This is blatantly contrary to the very purpose for which the National
Health Insurance Program was created.[8]
xxxxxxxxx
We agree.
The state policy in creating a national health insurance program is to grant discounted medical coverage to all
citizens, with priority to the needs of the underprivileged, sick, elderly, disabled, women and children, and free
medical care to paupers[9].
The very same policy was adopted in RA 7875[10] which sought to:
a) provide all citizens of the Philippines with the mechanism to gain financial access to health services;
b) create the National Health Insurance Program to serve as the means to help the people pay for the
health services;
c) prioritize and accelerate the provision of health services to all Filipinos, especially that segment of the
population who cannot afford such services; and
d) establish the Philippine Health Insurance Corporation that will administer the program at central and
local levels.[11]
To assist the state in pursuing the aforementioned policy, health institutions were granted the privilege of
applying for accreditation as health care providers.[12] Respondent Chinese General Hospital and Medical Center
(CGH) was one of those which received such accreditation.
 Under the rules promulgated by the Philhealth Board pursuant to RA 7875, any claim for payment of services
rendered (to a patient) shall be filed within sixty (60) calendar days from the date of discharge of the patient.
Otherwise, the claim is barred.[13]
But before a claim is filed with petitioner Philhealth for services already rendered, an accredited health care
provider like respondent CGH is required to:
a. accomplish a Philhealth claim form;
b. accomplish an itemized list of the medicines administered to and medical supplies used by the patient
concerned, indicating therein the quality, unit, price and total price corresponding thereto;
c. require the patient concerned and his/her employer to accomplish and submit a Philhealth
member/employer certification;
d. in case the patient gave birth, require her to submit a certified true copy of the childs birth certificate;
e. in case the patient died, require the immediate relatives to submit a certified true copy of the
deceaseds death certificate; and
f. in case a members dependent is hospitalized for which the member seeks coverage, require the
member to submit proof of relationship to the patient and to execute an affidavit of support. [14]
Apart from the foregoing requirements which often necessitate securing documents from other government
offices, and the fact that most patients are unable to immediately accomplish and submit the required documents,
an accredited health care provider like CGH has to contend with an average of about a thousand members and/or
dependents seeking medical treatment for various illnesses per month.
Under these circumstances, it is unreasonable to expect respondent CGH to comply 100% of the time with the
prescribed 60-day rule of Philhealth. Despite the prescribed standard procedures, respondent has no assurance of
the members prompt submission of the required documents. This factor is completely beyond its control. There will
always be delay not attributable to respondent.
The unreasonably strict implementation of the 60-day rule, without regard to the causes of delay beyond
respondents control, will be counter-productive to the long-term effectiveness of the NHIP. Instead of placing a
premium on participation in the Program, Philhealth punishes an accredited health provider like CGH by refusing to
pay its claims for services already rendered. Under these circumstances, no accredited provider will gamble on
honoring claims with delayed supporting papers ― no matter how meritorious ― knowing that reimbursement from
Philhealth will not be forthcoming.
This Court will not hesitate, whenever necessary, to allow a liberal implementation of the rules and regulations
of an administrative agency in cases where their unjustifiably rigid enforcement will result in a deprivation of legal
rights. In this case, respondent had already rendered the services for which it was filing its claims. Technicalities
should not be allowed to defeat respondents right to be reimbursed, specially since petitioners charter itself
guarantees such reimbursement.
A careful reading of RA 7875 shows that the law itself does not provide for any specific period within which to
file claims. We can safely presume therefore that the period for filing was not per se the principal concern of the
legislature. More important than mere technicalities is the realization of the state policy to provide Philhealth
members with the requisite medical care at the least possible cost. Truly, nothing can be more disheartening than
to see the Acts noble objective frustrated by the overly stringent application of technical rules.
The fact is that it was not RA 7875 itself but Section 52 of its Implementing Rules and Regulations which
established the 60-day cut-off for the filing of claims.
While it is doctrinal in administrative law that the rules and regulations of administrative bodies interpreting the
law they are entrusted to enforce have the force of law[15], these issuances are by no means iron-clad norms.
Administrative bodies themselves can and have in fact bent the rules for reasons of public interest. On September
15, 1998, for instance, petitioner issued Philhealth Circular No. 31-A:[16]
IN ORDER to allow members of the National Health Insurance Program (NHIP) sufficient time to complete all
documents to support their medical care claims, Philhealth is temporarily suspending the sixty (60)-day
reglementary period for filing claims.
While Section 52 (b), Rule VIII of the Implementing Rules and Regulations of R.A. 7875 provides that all
claims for payment of services shall be filed within 60 calendar days from the day of discharge of a patient,
there is a need to extend this period to minimize the incidence of late filing due to members personal
difficulties and circumstances beyond their control. (emphasis ours)
And then again, on April 20, 1999, Philhealth Circular No. 50 was issued:
TO MINIMIZE the incidence of late filing of claims due to members personal difficulties in preparing the
needed documents, Philhealth is extending the period for filing of claims xxx (emphasis ours)
The above circulars indubitably recognized the necessity of extending the 60-day period because of the
difficulties encountered by members in completing the required documents, often due to circumstances beyond
their control. Petitioner appeared to be well aware of the problems encountered by its members in complying with
the 60-day rule. Furthermore, implicit in the wording of the circulars was the cognition of the fact that the fault was
not always attributable to the health care providers like CGH but to the members themselves.
Delay on the part of members is an ordinary occurrence. There is no need to make a mountain out of a
molehill as far as this particular point is concerned. To this day, members continue to encounter delay in submitting
their documents. There was therefore no compelling reason for the exacting and meticulous enforcement of the rule
when, in at least two instances, petitioner itself implemented it liberally and on the same ground that it was using
against respondent.
Petitioner likewise contends that respondent failed to exhaust administrative remedies before resorting to
judicial intervention. We disagree.
Under the doctrine of exhaustion of administrative remedies, an administrative decision must first be appealed
to the administrative superiors at the highest level before it may be elevated to a court of justice for review.
This doctrine, however, is a relative one and its flexibility is conditioned on the peculiar circumstances of a
case.[17] There are a number of instances when the doctrine has been held to be inapplicable. Among the
established exceptions are:
1) when the question raised is purely legal;
2) when the administrative body is in estoppel;
3) when the act complained of is patently illegal;
4) when there is urgent need for judicial intervention;
5) when the claim involved is small;
6) when irreparable damage will be suffered;
7) when there is no other plain, speedy and adequate remedy;
8) when strong public interest is involved;
9) when the subject of the controversy is private land;
10) in quo warranto proceedings.[18]
As explained by the appellate court:
It is Our view that the instant case falls as one of the exceptions, concerning as it does public interest. As
mentioned earlier, although they were not made parties to the instant case, the rights of millions of Filipinos who
are members of PHILHEALTH and who obviously rely on it for their health care, are considered, nonetheless,
parties to the present case. This Court is mandated herein to take conscious and detailed consideration of the
interplay of the interests of the state, the health care giver and the members. With these in mind, We hold that the
greater interest of the greater number of people, mostly members of PHILHEALTH, is paramount.
Furthermore, when the representatives of herein petitioner met with Dr. Enrique Zalamea, PHILHEALTHs President
and Chief Executive Officer, he informed them that, in lieu of protest to be filed directly with him, the representatives
could make representations with the Office of the President, which petitioner did to no avail, considering that the
formal protest filed was referred back by the Office of the President to Dr. Zalamea. Being then the head of
PHILHEALTH, and expected to have an intimate knowledge of the law and the rules creating the National Health
Insurance Program, under which PHILHEALTH was created, he instructed herein petitioner to pursue a remedy not
sanctioned by the rules and not in accord with the rule of exhaustion of administrative remedies. In so doing,
PHILHEALTH is deemed estopped from assailing the instant petition for failure to exhaust administrative remedies
when PHILHEALTH itself, through its president, does not subscribe to it. [19]
 There is no need to belabor the fact that the baseless denial of respondents claims will be gravely disturbing to
the health care industry, specially the providers whose claims will be unpaid. The unfortunate reality is that there
are today some health care providers who admit numbers for treatment and/or confinement yet require them to pay
the portion which ought to be shouldered by Philhealth. A refund is made only if their claim is first paid, due to the
apprehension of not being reimbursed. Simply stated, a member cannot avail of his benefits under the NHIP at the
time he needs it most.
We cannot turn a deaf ear to respondents plea for fairness which essentially demands that its claims for
services already rendered be honored as the National Health Insurance Program law intended.
WHEREFORE, the assailed decision of the Court of Appeals is hereby AFFIRMED. Petitioner is hereby
ordered to pay respondents claims representing services rendered to its members from 1989 to 1992.
No costs.
SO ORDERED.

SECURITIES AND EXCHANGE COMMISSION vs. INTERPORT RESOURCES CORPORATION

G.R. No. 135808 October 6, 2008

DECISION
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision,1 dated 20
August 1998, rendered by the Court of Appeals in C.A.-G.R. SP No. 37036, enjoining petitioner Securities and
Exchange Commission (SEC) from taking cognizance of or initiating any action against the respondent corporation
Interport Resources Corporation (IRC) and members of its board of directors, respondents Manuel S. Recto, Rene
S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy and Santiago Tanchan, Jr., with
respect to Sections 8, 30 and 36 of the Revised Securities Act. In the same Decision of the appellate court, all the
proceedings taken against the respondents, including the assailed SEC Omnibus Orders of 25 January 1995 and
30 March 1995, were declared void.
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement with Ganda Holdings
Berhad (GHB). Under the Memorandum of Agreement, IRC acquired 100% or the entire capital stock of Ganda
Energy Holdings, Inc. (GEHI),2 which would own and operate a 102 megawatt (MW) gas turbine power-generating
barge. The agreement also stipulates that GEHI would assume a five-year power purchase contract with National
Power Corporation. At that time, GEHI's power-generating barge was 97% complete and would go on-line by mid-
September of 1994. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC amounting to
40.88 billion shares which had a total par value of P488.44 million.3
On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI). PRCI owns
25.724 hectares of real estate property in Makati. Under the Agreement, GHB, a member of the Westmont Group of
Companies in Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition by IRC of
PRCI.4
IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent through
facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile machine of the SEC
could not receive it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9 August 1994. 5
The SEC averred that it received reports that IRC failed to make timely public disclosures of its negotiations with
GHB and that some of its directors, respondents herein, heavily traded IRC shares utilizing this material insider
information. On 16 August 1994, the SEC Chairman issued a directive requiring IRC to submit to the SEC a copy of
its aforesaid Memorandum of Agreement with GHB. The SEC Chairman further directed all principal officers of IRC
to appear at a hearing before the Brokers and Exchanges Department (BED) of the SEC to explain IRC's failure to
immediately disclose the information as required by the Rules on Disclosure of Material Facts. 6
In compliance with the SEC Chairman's directive, the IRC sent a letter dated 16 August 1994 to the SEC, attaching
thereto copies of the Memorandum of Agreement. Its directors, Manuel Recto, Rene Villarica and Pelagio Ricalde,
also appeared before the SEC on 22 August 1994 to explain IRC's alleged failure to immediately disclose material
information as required under the Rules on Disclosure of Material Facts. 7
On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure of
Material Facts, in connection with the Old Securities Act of 1936, when it failed to make timely disclosure of its
negotiations with GHB. In addition, the SEC pronounced that some of the officers and directors of IRC entered into
transactions involving IRC shares in violation of Section 30, in relation to Section 36, of the Revised Securities Act. 8
Respondents filed an Omnibus Motion, dated 21 September 1994, which was superseded by an Amended
Omnibus Motion, filed on 18 October 1994, alleging that the SEC had no authority to investigate the subject matter,
since under Section 8 of Presidential Decree No. 902-A,9 as amended by Presidential Decree No. 1758, jurisdiction
was conferred upon the Prosecution and Enforcement Department (PED) of the SEC. Respondents also claimed
that the SEC violated their right to due process when it ordered that the respondents appear before the SEC and
"show cause why no administrative, civil or criminal sanctions should be imposed on them," and, thus, shifted the
burden of proof to the respondents. Lastly, they sought to have their cases tried jointly given the identical factual
situations surrounding the alleged violation committed by the respondents. 10
Respondents also filed a Motion for Continuance of Proceedings on 24 October 1994, wherein they moved for
discontinuance of the investigations and the proceedings before the SEC until the undue publicity had abated and
the investigating officials had become reasonably free from prejudice and public pressure.11
No formal hearings were conducted in connection with the aforementioned motions, but on 25 January 1995, the
SEC issued an Omnibus Order which thus disposed of the same in this wise: 12
WHEREFORE, premised on the foregoing considerations, the Commission resolves and hereby rules:
1. To create a special investigating panel to hear and decide the instant case in accordance with the Rules
of Practice and Procedure Before the Prosecution and Enforcement Department (PED), Securities and
Exchange Commission, to be composed of Attys. James K. Abugan, Medardo Devera (Prosecution and
Enforcement Department), and Jose Aquino (Brokers and Exchanges Department), which is hereby
directed to expeditiously resolve the case by conducting continuous hearings, if possible.
2. To recall the show cause orders dated September 19, 1994 requiring the respondents to appear and
show cause why no administrative, civil or criminal sanctions should be imposed on them.
3. To deny the Motion for Continuance for lack of merit.
Respondents filed an Omnibus Motion for Partial Reconsideration,13 questioning the creation of the special
investigating panel to hear the case and the denial of the Motion for Continuance. The SEC denied reconsideration
in its Omnibus Order dated 30 March 1995.14
The respondents filed a petition before the Court of Appeals docketed as C.A.-G.R. SP No. 37036, questioning the
Omnibus Orders dated 25 January 1995 and 30 March 1995. 15 During the proceedings before the Court of
Appeals, respondents filed a Supplemental Motion16 dated 16 May 1995, wherein they prayed for the issuance of a
writ of preliminary injunction enjoining the SEC and its agents from investigating and proceeding with the hearing of
the case against respondents herein. On 5 May 1995, the Court of Appeals granted their motion and issued a writ
of preliminary injunction, which effectively enjoined the SEC from filing any criminal, civil or administrative case
against the respondents herein.17
On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC Omnibus Orders so that the case may be
investigated by the PED in accordance with the SEC Rules and Presidential Decree No. 902-A, and not by the
special body whose creation the SEC had earlier ordered.18
The Court of Appeals promulgated a Decision19 on 20 August 1998. It determined that there were no implementing
rules and regulations regarding disclosure, insider trading, or any of the provisions of the Revised Securities Acts
which the respondents allegedly violated. The Court of Appeals likewise noted that it found no statutory authority for
the SEC to initiate and file any suit for civil liability under Sections 8, 30 and 36 of the Revised Securities Act. Thus,
it ruled that no civil, criminal or administrative proceedings may possibly be held against the respondents without
violating their rights to due process and equal protection. It further resolved that absent any implementing rules, the
SEC cannot be allowed to quash the assailed Omnibus Orders for the sole purpose of re-filing the same case
against the respondents.20
The Court of Appeals further decided that the Rules of Practice and Procedure Before the PED, which took effect
on 14 April 1990, did not comply with the statutory requirements contained in the Administrative Code of 1997.
Section 8, Rule V of the Rules of Practice and Procedure Before the PED affords a party the right to be present but
without the right to cross-examine witnesses presented against him, in violation of Section 12(3), Chapter 3, Book
VII of the Administrative Code. 21
In the dispositive portion of its Decision, dated 20 August 1998, the Court of Appeals ruled that 22:
 WHEREFORE, [herein petitioner SEC's] Motion for Leave to Quash SEC Omnibus Orders is
hereby DENIED. The petition for certiorari, prohibition and mandamus is GRANTED. Consequently, all
proceedings taken against [herein respondents] in this case, including the Omnibus Orders of January 25,
1995 and March 30, 1995 are declared null and void. The writ of preliminary injunction is hereby made
permanent and, accordingly, [SEC] is hereby prohibited from taking cognizance or initiating any
action, be they civil, criminal, or administrative against [respondents] with respect to Sections 8 (Procedure
for Registration), 30 (Insider's duty to disclose when trading) and 36 (Directors, Officers and Principal
Stockholders) in relation to Sections 46 (Administrative sanctions) 56 (Penalties) 44 (Liabilities of
Controlling persons) and 45 (Investigations, injunctions and prosecution of offenses) of the Revised
Securities Act and Section 144 (Violations of the Code) of the Corporation Code. (Emphasis provided.)
The SEC filed a Motion for Reconsideration, which the Court of Appeals denied in a Resolution 23 issued on 30
September 1998.
Hence, the present petition, which relies on the following grounds24:
I
THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONER'S MOTION FOR LEAVE TO QUASH
THE ASSAILED SEC OMNIBUS ORDERS DATED JANUARY 25 AND MARCH 30, 1995.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS NO STATUTORY AUTHORITY
WHATSOEVER FOR PETITIONER SEC TO INITIATE AND FILE ANY SUIT BE THEY CIVIL, CRIMINAL
OR ADMINISTRATIVE AGAINST RESPONDENT CORPORATION AND ITS DIRECTORS WITH
RESPECT TO SECTION 30 (INSIDER'S DUTY TO DISCOLSED [sic] WHEN TRADING) AND 36
(DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS) OF THE REVISED SECURITIES ACT;
AND
III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT RULES OF PRACTICE AND
PROSECUTION BEFORE THE PED AND THE SICD RULES OF PROCEDURE ON ADMINISTRATIVE
ACTIONS/PROCEEDINGS25 ARE INVALID AS THEY FAIL TO COMPLY WITH THE STATUTORY
REQUIREMENTS CONTAINED IN THE ADMINISTRATIVE CODE OF 1987.
The petition is impressed with merit.
Before discussing the merits of this case, it should be noted that while this case was pending in this Court, Republic
Act No. 8799, otherwise known as the Securities Regulation Code, took effect on 8 August 2000. Section 8 of
Presidential Decree No. 902-A, as amended, which created the PED, was already repealed as provided for in
Section 76 of the Securities Regulation Code:
SEC. 76. Repealing Clause. - The Revised Securities Act (Batas Pambansa Blg. 178), as amended, in its
entirety, and Sections 2, 4 and 8 of Presidential Decree 902-A, as amended, are hereby repealed. All other
laws, orders, rules and regulations, or parts thereof, inconsistent with any provision of this Code are hereby
repealed or modified accordingly.
Thus, under the new law, the PED has been abolished, and the Securities Regulation Code has taken the place of
the Revised Securities Act.
The Court now proceeds with a discussion of the present case.
I. Sctions 8, 30 and 36 of the Revised Securities Act do not require the enactment of implementing rules to
make them binding and effective.
The Court of Appeals ruled that absent any implementing rules for Sections 8, 30 and 36 of the Revised Securities
Act, no civil, criminal or administrative actions can possibly be had against the respondents without violating their
right to due process and equal protection, citing as its basis the case Yick Wo v. Hopkins.26 This is untenable.
In the absence of any constitutional or statutory infirmity, which may concern Sections 30 and 36 of the Revised
Securities Act, this Court upholds these provisions as legal and binding. It is well settled that every law has in its
favor the presumption of validity. Unless and until a specific provision of the law is declared invalid and
unconstitutional, the same is valid and binding for all intents and purposes. 27 The mere absence of implementing
rules cannot effectively invalidate provisions of law, where a reasonable construction that will support the law may
be given. In People v. Rosenthal,28 this Court ruled that:
 In this connection we cannot pretermit reference to the rule that "legislation should not be held invalid on
the ground of uncertainty if susceptible of any reasonable construction that will support and give it effect.
An Act will not be declared inoperative and ineffectual on the ground that it furnishes no adequate means to
secure the purpose for which it is passed, if men of common sense and reason can devise and provide the
means, and all the instrumentalities necessary for its execution are within the reach of those intrusted
therewith." (25 R.C.L., pp. 810, 811)
In Garcia v. Executive Secretary,29 the Court underlined the importance of the presumption of validity of laws and
the careful consideration with which the judiciary strikes down as invalid acts of the legislature:
The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the
political departments are valid in the absence of a clear and unmistakable showing to the contrary. To
doubt is to sustain. This presumption is based on the doctrine of separation of powers which enjoins upon
each department a becoming respect for the acts of the other departments. The theory is that as the joint
act of Congress and the President of the Philippines, a law has been carefully studied and determined to
be in accordance with the fundamental law before it was finally enacted.
The necessity for vesting administrative authorities with power to make rules and regulations is based on the
impracticability of lawmakers' providing general regulations for various and varying details of management.30 To
rule that the absence of implementing rules can render ineffective an act of Congress, such as the Revised
Securities Act, would empower the administrative bodies to defeat the legislative will by delaying the implementing
rules. To assert that a law is less than a law, because it is made to depend on a future event or act, is to rob the
Legislature of the power to act wisely for the public welfare whenever a law is passed relating to a state of affairs
not yet developed, or to things future and impossible to fully know. 31 It is well established that administrative
authorities have the power to promulgate rules and regulations to implement a given statute and to effectuate its
policies, provided such rules and regulations conform to the terms and standards prescribed by the statute as well
as purport to carry into effect its general policies. Nevertheless, it is undisputable that the rules and regulations
cannot assert for themselves a more extensive prerogative or deviate from the mandate of the statute. 32 Moreover,
where the statute contains sufficient standards and an unmistakable intent, as in the case of Sections 30 and 36 of
the Revised Securities Act, there should be no impediment to its implementation.
The reliance placed by the Court of Appeals in Yick Wo v. Hopkins33 shows a glaring error. In the cited case, this
Court found unconstitutional an ordinance which gave the board of supervisors authority to refuse permission to
carry on laundries located in buildings that were not made of brick and stone, because it violated the equal
protection clause and was highly discriminatory and hostile to Chinese residents and not because the standards
provided therein were vague or ambiguous.
This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the Revised Securities Act,
such that the acts proscribed and/or required would not be understood by a person of ordinary intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:
Sec. 30. Insider's duty to disclose when trading. - (a) It shall be unlawful for an insider to sell or buy a
security of the issuer, if he knows a fact of special significance with respect to the issuer or the security that
is not generally available, unless (1) the insider proves that the fact is generally available or (2) if the other
party to the transaction (or his agent) is identified, (a) the insider proves that the other party knows it, or (b)
that other party in fact knows it from the insider or otherwise.
(b) "Insider" means (1) the issuer, (2) a director or officer of, or a person controlling, controlled by, or under
common control with, the issuer, (3) a person whose relationship or former relationship to the issuer gives
or gave him access to a fact of special significance about the issuer or the security that is not generally
available, or (4) a person who learns such a fact from any of the foregoing insiders as defined in this
subsection, with knowledge that the person from whom he learns the fact is such an insider.
(c) A fact is "of special significance" if (a) in addition to being material it would be likely, on being made
generally available, to affect the market price of a security to a significant extent, or (b) a reasonable
person would consider it especially important under the circumstances in determining his course of action
in the light of such factors as the degree of its specificity, the extent of its difference from information
generally available previously, and its nature and reliability.
(d) This section shall apply to an insider as defined in subsection (b) (3) hereof only to the extent that he
knows of a fact of special significance by virtue of his being an insider.
The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the
gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an
insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose
material information to the other party or abstain from trading the shares of his corporation. This duty to disclose or
abstain is based on two factors: first, the existence of a relationship giving access, directly or indirectly, to
information intended to be available only for a corporate purpose and not for the personal benefit of anyone; and
second, the inherent unfairness involved when a party takes advantage of such information knowing it is
unavailable to those with whom he is dealing. 34
In the United States (U.S.), the obligation to disclose or abstain has been traditionally imposed on corporate
"insiders," particularly officers, directors, or controlling stockholders, but that definition has since been
expanded.35The term "insiders" now includes persons whose relationship or former relationship to the issuer gives
or gave them access to a fact of special significance about the issuer or the security that is not generally available,
and one who learns such a fact from an insider knowing that the person from whom he learns the fact is such an
insider. Insiders have the duty to disclose material facts which are known to them by virtue of their position but
which are not known to persons with whom they deal and which, if known, would affect their investment judgment.
In some cases, however, there may be valid corporate reasons for the nondisclosure of material information. Where
such reasons exist, an issuer's decision not to make any public disclosures is not ordinarily considered as a
violation of insider trading. At the same time, the undisclosed information should not be improperly used for non-
corporate purposes, particularly to disadvantage other persons with whom an insider might transact, and therefore
the insider must abstain from entering into transactions involving such securities. 36
Respondents further aver that under Section 30 of the Revised Securities Act, the SEC still needed to define the
following terms: "material fact," "reasonable person," "nature and reliability" and "generally available." 37 In
determining whether or not these terms are vague, these terms must be evaluated in the context of Section 30 of
the Revised Securties Act. To fully understand how the terms were used in the aforementioned provision, a
discussion of what the law recognizes as a fact of special significance is required, since the duty to disclose such
fact or to abstain from any transaction is imposed on the insider only in connection with a fact of special
significance.
Under the law, what is required to be disclosed is a fact of "special significance" which may be (a) a material fact
which would be likely, on being made generally available, to affect the market price of a security to a significant
extent, or (b) one which a reasonable person would consider especially important in determining his course of
action with regard to the shares of stock.
(a) Material Fact - The concept of a "material fact" is not a new one. As early as 1973, the Rules Requiring
Disclosure of Material Facts by Corporations Whose Securities Are Listed In Any Stock Exchange or
Registered/Licensed Under the Securities Act, issued by the SEC on 29 January 1973, explained that "[a] fact is
material if it induces or tends to induce or otherwise affect the sale or purchase of its securities." Thus, Section 30
of the Revised Securities Act provides that if a fact affects the sale or purchase of securities, as well as its price,
then the insider would be required to disclose such information to the other party to the transaction involving the
securities. This is the first definition given to a "fact of special significance."
(b.1) Reasonable Person - The second definition given to a fact of special significance involves the judgment of a
"reasonable person." Contrary to the allegations of the respondents, a "reasonable person" is not a problematic
legal concept that needs to be clarified for the purpose of giving effect to a statute; rather, it is the standard on
which most of our legal doctrines stand. The doctrine on negligence uses the discretion of the "reasonable man" as
the standard.38 A purchaser in good faith must also take into account facts which put a "reasonable man" on his
guard.39 In addition, it is the belief of the reasonable and prudent man that an offense was committed that sets the
criteria for probable cause for a warrant of arrest.40 This Court, in such cases, differentiated the reasonable and
prudent man from "a person with training in the law such as a prosecutor or a judge," and identified him as "the
average man on the street," who weighs facts and circumstances without resorting to the calibrations of our
technical rules of evidence of which his knowledge is nil. Rather, he relies on the calculus of common sense of
which all reasonable men have in abundance.41 In the same vein, the U.S. Supreme Court similarly determined its
standards by the actual significance in the deliberations of a "reasonable investor," when it ruled in TSC Industries,
Inc. v. Northway, Inc.,42 that the determination of materiality "requires delicate assessments of the inferences a
‘reasonable shareholder' would draw from a given set of facts and the significance of those inferences to him."
(b.2) Nature and Reliability - The factors affecting the second definition of a "fact of special significance," which is
of such importance that it is expected to affect the judgment of a reasonable man, were substantially lifted from a
test of materiality pronounced in the case In the Matter of Investors Management Co., Inc. 43:
 Among the factors to be considered in determining whether information is material under this test are the
degree of its specificity, the extent to which it differs from information previously publicly disseminated, and
its reliability in light of its nature and source and the circumstances under which it was received.
It can be deduced from the foregoing that the "nature and reliability" of a significant fact in determining the course of
action a reasonable person takes regarding securities must be clearly viewed in connection with the particular
circumstances of a case. To enumerate all circumstances that would render the "nature and reliability" of a fact to
be of special significance is close to impossible. Nevertheless, the proper adjudicative body would undoubtedly be
able to determine if facts of a certain "nature and reliability" can influence a reasonable person's decision to retain,
sell or buy securities, and thereafter explain and justify its factual findings in its decision.
(c) Materiality Concept - A discussion of the "materiality concept" would be relevant to both a material fact which
would affect the market price of a security to a significant extent and/or a fact which a reasonable person would
consider in determining his or her cause of action with regard to the shares of stock. Significantly, what is referred
to in our laws as a fact of special significance is referred to in the U.S. as the "materiality concept" and the latter is
similarly not provided with a precise definition. In Basic v. Levinson,44 the U.S. Supreme Court cautioned against
confining materiality to a rigid formula, stating thus:
A bright-line rule indeed is easier to follow than a standard that requires the exercise of judgment in the
light of all the circumstances. But ease of application alone is not an excuse for ignoring the purposes of
the Securities Act and Congress' policy decisions. Any approach that designates a single fact or
occurrence as always determinative of an inherently fact-specific finding such as materiality, must
necessarily be overinclusive or underinclusive.
Moreover, materiality "will depend at any given time upon a balancing of both the indicated probability that the
event will occur and the anticipated magnitude of the event in light of the totality of the company activity." 45 In
drafting the Securities Act of 1934, the U.S. Congress put emphasis on the limitations to the definition of materiality:
Although the Committee believes that ideally it would be desirable to have absolute certainty in the
application of the materiality concept, it is its view that such a goal is illusory and unrealistic. The
materiality concept is judgmental in nature and it is not possible to translate this into a numerical
formula. The Committee's advice to the [SEC] is to avoid this quest for certainty and to continue
consideration of materiality on a case-by-case basis as disclosure problems are identified." House
Committee on Interstate and Foreign Commerce, Report of the Advisory Committee on Corporate
Disclosure to the Securities and Exchange Commission, 95th Cong., 1st Sess., 327 (Comm.Print 1977).
(Emphasis provided.)46
(d) Generally Available - Section 30 of the Revised Securities Act allows the insider the defense that in a
transaction of securities, where the insider is in possession of facts of special significance, such information is
"generally available" to the public. Whether information found in a newspaper, a specialized magazine, or any
cyberspace media be sufficient for the term "generally available" is a matter which may be adjudged given the
particular circumstances of the case. The standards cannot remain at a standstill. A medium, which is widely used
today was, at some previous point in time, inaccessible to most. Furthermore, it would be difficult to approximate
how the rules may be applied to the instant case, where investigation has not even been started. Respondents
failed to allege that the negotiations of their agreement with GHB were made known to the public through any form
of media for there to be a proper appreciation of the issue presented.
Section 36(a) of the Revised Securities Act
As regards Section 36(a) of the Revised Securities Act, respondents claim that the term "beneficial ownership" is
vague and that it requires implementing rules to give effect to the law. Section 36(a) of the Revised Securities Act is
a straightforward provision that imposes upon (1) a beneficial owner of more than ten percent of any class of any
equity security or (2) a director or any officer of the issuer of such security, the obligation to submit a statement
indicating his or her ownership of the issuer's securities and such changes in his or her ownership thereof. The said
provision reads:
Sec. 36. Directors, officers and principal stockholders. - (a) Every person who is directly or indirectly
the beneficial owner of more than ten per centum of any [class] of any equity security which is registered
pursuant to this Act, or who is [a] director or an officer of the issuer of such security, shall file, at the time of
the registration of such security on a securities exchange or by the effective date of a registration statement
or within ten days after he becomes such a beneficial owner, director or officer, a statement with the
Commission and, if such security is registered on a securities exchange, also with the exchange, of the
amount of all equity securities of such issuer of which he is the beneficial owner, and within ten days after
the close of each calendar month thereafter, if there has been a change in such ownership during such
 month, shall file with the Commission, and if such security is registered on a securities exchange, shall also
file with the exchange, a statement indicating his ownership at the close of the calendar month and such
changes in his ownership as have occurred during such calendar month. (Emphasis provided.)
Section 36(a) refers to the "beneficial owner." Beneficial owner has been defined in the following manner:
[F]irst, to indicate the interest of a beneficiary in trust property (also called "equitable ownership"); and
second, to refer to the power of a corporate shareholder to buy or sell the shares, though the shareholder is
not registered in the corporation's books as the owner. Usually, beneficial ownership is distinguished from
naked ownership, which is the enjoyment of all the benefits and privileges of ownership, as against
possession of the bare title to property.47
Even assuming that the term "beneficial ownership" was vague, it would not affect respondents' case, where the
respondents are directors and/or officers of the corporation, who are specifically required to comply with the
reportorial requirements under Section 36(a) of the Revised Securities Act. The validity of a statute may be
contested only by one who will sustain a direct injury as a result of its enforcement. 48
Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the securities market
and prevent unscrupulous individuals, who by their positions obtain non-public information, from taking advantage
of an uninformed public. No individual would invest in a market which can be manipulated by a limited number of
corporate insiders. Such reaction would stifle, if not stunt, the growth of the securities market. To avert the
occurrence of such an event, Section 30 of the Revised Securities Act prevented the unfair use of non-public
information in securities transactions, while Section 36 allowed the SEC to monitor the transactions entered into by
corporate officers and directors as regards the securities of their companies.
In the case In the Matter of Investor's Management Co.,49 it was cautioned that "the broad language of the anti-
fraud provisions," which include the provisions on insider trading, should not be "circumscribed by fine distinctions
and rigid classifications." The ambit of anti-fraud provisions is necessarily broad so as to embrace the infinite
variety of deceptive conduct.50
In Tatad v. Secretary of Department of Energy,51 this Court brushed aside a contention, similar to that made by the
respondents in this case, that certain words or phrases used in a statute do not set determinate standards,
declaring that:
Petitioners contend that the words "as far as practicable," "declining" and "stable" should have been
defined in R.A. No. 8180 as they do not set determinate and determinable standards. This stubborn
submission deserves scant consideration. The dictionary meanings of these words are well settled and
cannot confuse men of reasonable intelligence. x x x. The fear of petitioners that these words will result in
the exercise of executive discretion that will run riot is thus groundless. To be sure, the Court has sustained
the validity of similar, if not more general standards in other cases.
Among the words or phrases that this Court upheld as valid standards were "simplicity and dignity," 52 "public
interest,"53 and "interests of law and order."54
The Revised Securities Act was approved on 23 February 1982. The fact that the Full Disclosure Rules were
promulgated by the SEC only on 24 July 1996 does not render ineffective in the meantime Section 36 of the
Revised Securities Act. It is already unequivocal that the Revised Securities Act requires full disclosure and the Full
Disclosure Rules were issued to make the enforcement of the law more consistent, efficient and effective. It is
equally reasonable to state that the disclosure forms later provided by the SEC, do not, in any way imply that no
compliance was required before the forms were provided. The effectivity of a statute which imposes reportorial
requirements cannot be suspended by the issuance of specified forms, especially where compliance therewith may
be made even without such forms. The forms merely made more efficient the processing of requirements already
identified by the statute.
For the same reason, the Court of Appeals made an evident mistake when it ruled that no civil, criminal or
administrative actions can possibly be had against the respondents in connection with Sections 8, 30 and 36 of the
Revised Securities Act due to the absence of implementing rules. These provisions are sufficiently clear and
complete by themselves. Their requirements are specifically set out, and the acts which are enjoined are
determinable. In particular, Section 855 of the Revised Securities Act is a straightforward enumeration of the
procedure for the registration of securities and the particular matters which need to be reported in the registration
statement thereof. The Decision, dated 20 August 1998, provides no valid reason to exempt the respondent IRC
from such requirements. The lack of implementing rules cannot suspend the effectivity of these provisions. Thus,
this Court cannot find any cogent reason to prevent the SEC from exercising its authority to investigate respondents
for violation of Section 8 of the Revised Securities Act.
II. The right to cross-examination is not absolute and cannot be demanded during investigative
proceedings before the PED.
In its assailed Decision dated 20 August 1998, the Court of Appeals pronounced that the PED Rules of Practice
and Procedure was invalid since Section 8, Rule V56 thereof failed to provide for the parties' right to cross-
examination, in violation of the Administrative Code of 1987 particularly Section 12(3), Chapter 3, Book VII thereof.
This ruling is incorrect.
Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure, categorically stated that the proceedings
before the PED are summary in nature:
Section 4. Nature of Proceedings - Subject to the requirements of due process, proceedings before the
"PED" shall be summary in nature not necessarily adhering to or following the technical rules of evidence
obtaining in the courts of law. The Rules of Court may apply in said proceedings in suppletory character
whenever practicable.
Rule V of the PED Rules of Practice and Procedure further specified that:
Section 5. Submission of Documents - During the preliminary conference/hearing, or immediately
thereafter, the Hearing Officer may require the parties to simultaneously submit their respective verified
position papers accompanied by all supporting documents and the affidavits of their witnesses, if any which
shall take the place of their direct testimony. The parties shall furnish each other with copies of the position
papers together with the supporting affidavits and documents submitted by them.
Section 6. Determination of necessity of hearing. - Immediately after the submission by the parties of their
position papers and supporting documents, the Hearing Officer shall determine whether there is a need for
a formal hearing. At this stage, he may, in his discretion, and for the purpose of making such determination,
elicit pertinent facts or information, including documentary evidence, if any, from any party or witness to
complete, as far as possible, the facts of the case. Facts or information so elicited may serve as basis for
his clarification or simplifications of the issues in the case. Admissions and stipulation of facts to abbreviate
the proceedings shall be encouraged.
Section 7. Disposition of Case. If the Hearing Officer finds no necessity of further hearing after the parties
have submitted their position papers and supporting documents, he shall so inform the parties stating the
reasons therefor and shall ask them to acknowledge the fact that they were so informed by signing the
minutes of the hearing and the case shall be deemed submitted for resolution.
As such, the PED Rules provided that the Hearing Officer may require the parties to submit their respective verified
position papers, together with all supporting documents and affidavits of witnesses. A formal hearing was not
mandatory; it was within the discretion of the Hearing Officer to determine whether there was a need for a formal
hearing. Since, according to the foregoing rules, the holding of a hearing before the PED is discretionary, then the
right to cross-examination could not have been demanded by either party.
Secondly, it must be pointed out that Chapter 3, Book VII of the Administrative Code, entitled "Adjudication," does
not affect the investigatory functions of the agencies. The law creating the PED, Section 8 of Presidential Decree
No. 902-A, as amended, defines the authority granted to the PED, thus:
SEC. 8. The Prosecution and Enforcement Department shall have, subject to the Commission's control and
supervision, the exclusive authority to investigate, on complaint or motu proprio, any act or omission of
the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or of their
stockholders, officers or partners, including any fraudulent devices, schemes or representations, in violation
of any law or rules and regulations administered and enforced by the Commission; to file and
prosecute in accordance with law and rules and regulations issued by the Commission and in appropriate
cases, the corresponding criminal or civil case before the Commission or the proper court or body upon
prima facie finding of violation of any laws or rules and regulations administered and enforced by the
Commission; and to perform such other powers and functions as may be provided by law or duly delegated
to it by the Commission. (Emphasis provided.)
The law creating PED empowers it to investigate violations of the rules and regulations promulgated by the SEC
and to file and prosecute such cases. It fails to mention any adjudicatory functions insofar as the PED is concerned.
Thus, the PED Rules of Practice and Procedure need not comply with the provisions of the Administrative Code on
adjudication, particularly Section 12(3), Chapter 3, Book VII.
In Cariño v. Commission on Human Rights,57 this Court sets out the distinction between investigative and
adjudicative functions, thus:
 "Investigate," commonly understood, means to examine, explore, inquire or delve or probe into, research
on, study. The dictionary definition of "investigate" is "to observe or study closely; inquire into
systematically: "to search or inquire into" xx to subject to an official probe xx: to conduct an official inquiry."
The purpose of an investigation, of course is to discover, to find out, to learn, obtain information. Nowhere
included or intimated is the notion of settling, deciding or resolving a controversy involved in the facts
inquired into by application of the law to the facts established by the inquiry.
The legal meaning of "investigate" is essentially the same: "(t)o follow up step by step by patient inquiry or
observation. To trace or track; to search into; to examine and inquire into with care and accuracy; to find
out by careful inquisition; examination; the taking of evidence; a legal inquiry;" "to inquire; to make an
investigation," "investigation" being in turn described as "(a)n administrative function, the exercise of which
ordinarily does not require a hearing. 2 Am J2d Adm L Sec. 257; xx an inquiry, judicial or otherwise, for the
discovery and collection of facts concerning a certain matter or matters."
"Adjudicate," commonly or popularly understood, means to adjudge, arbitrate, judge, decide, determine,
resolve, rule on, settle. The dictionary defines the term as "to settle finally (the rights and duties of parties to
a court case) on the merits of issues raised: xx to pass judgment on: settle judicially: xx act as judge." And
"adjudge" means "to decide or rule upon as a judge or with judicial or quasi-judicial powers: xx to award or
grant judicially in a case of controversy x x x."
In a legal sense, "adjudicate" means: "To settle in the exercise of judicial authority. To determine finally.
Synonymous with adjudge in its strictest sense;" and "adjudge" means: "To pass on judicially, to decide, settle, or
decree, or to sentence or condemn. x x x Implies a judicial determination of a fact, and the entry of a judgment."
There is no merit to the respondent's averment that the sections under Chapter 3, Book VII of the Administrative
Code, do not distinguish between investigative and adjudicatory functions. Chapter 3, Book VII of the Administrative
Code, is unequivocally entitled "Adjudication."
Respondents insist that the PED performs adjudicative functions, as enumerated under Section 1(h) and (j), Rule II;
and Section 2(4), Rule VII of the PED Rules of Practice and Procedure:
Section 1. Authority of the Prosecution and Enforcement Department - Pursuant to Presidential Decree No.
902-A, as amended by Presidential Decree No. 1758, the Prosecution and Enforcement Department is
primarily charged with the following:
xxxx
(h) Suspends or revokes, after proper notice and hearing in accordance with these Rules, the franchise or
certificate of registration of corporations, partnerships or associations, upon any of the following grounds:
1. Fraud in procuring its certificate of registration;
2. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or
damage to the general public;
3. Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts
which would amount to a grave violation of its franchise;
xxxx
(j) Imposes charges, fines and fees, which by law, it is authorized to collect;
xxxx
Section 2. Powers of the Hearing Officer. The Hearing Officer shall have the following powers:
xxxx
4. To cite and/or declare any person in direct or indirect contempt in accordance with pertinent provisions of
the Rules of Court.
Even assuming that these are adjudicative functions, the PED, in the instant case, exercised its investigative
powers; thus, respondents do not have the requisite standing to assail the validity of the rules on adjudication. A
valid source of a statute or a rule can only be contested by one who will sustain a direct injury as a result of its
enforcement.58 In the instant case, respondents are only being investigated by the PED for their alleged failure to
disclose their negotiations with GHB and the transactions entered into by its directors involving IRC shares. The
respondents have not shown themselves to be under any imminent danger of sustaining any personal injury
attributable to the exercise of adjudicative functions by the SEC. They are not being or about to be subjected by the
PED to charges, fees or fines; to citations for contempt; or to the cancellation of their certificate of registration under
Section 1(h), Rule II of the PED Rules of Practice and Procedure.
To repeat, the only powers which the PED was likely to exercise over the respondents were investigative in nature,
to wit:
Section 1. Authority of the Prosecution and Enforcement Department - Pursuant to Presidential Decree No.
902-A, as amended by Presidential Decree No. 1758, the Prosecution and Enforcement Department is
primarily charged with the following:
xxxx
b. Initiates proper investigation of corporations and partnerships or persons, their books, records and other
properties and assets, involving their business transactions, in coordination with the operating department
involved;
xxxx
e. Files and prosecutes civil or criminal cases before the Commission and other courts of justice involving
violations of laws and decrees enforced by the Commission and the rules and regulations promulgated
thereunder;
f. Prosecutes erring directors, officers and stockholders of corporations and partnerships, commercial
paper issuers or persons in accordance with the pertinent rules on procedures;
The authority granted to the PED under Section 1(b), (e), and (f), Rule II of the PED Rules of Practice and
Procedure, need not comply with Section 12, Chapter 3, Rule VII of the Administrative Code, which affects only the
adjudicatory functions of administrative bodies. Thus, the PED would still be able to investigate the respondents
under its rules for their alleged failure to disclose their negotiations with GHB and the transactions entered into by
its directors involving IRC shares.
This is not to say that administrative bodies performing adjudicative functions are required to strictly comply with the
requirements of Chapter 3, Rule VII of the Administrative Code, particularly, the right to cross-examination. It
should be noted that under Section 2.2 of Executive Order No. 26, issued on 7 October 1992, abbreviated
proceedings are prescribed in the disposition of administrative cases:
2. Abbreviation of Proceedings. All administrative agencies are hereby directed to adopt and include in their
respective Rules of Procedure the following provisions:
xxxx
2.2 Rules adopting, unless otherwise provided by special laws and without prejudice to Section 12, Chapter
3, Book VII of the Administrative Code of 1987, the mandatory use of affidavits in lieu of direct testimonies
and the preferred use of depositions whenever practicable and convenient.
As a consequence, in proceedings before administrative or quasi-judicial bodies, such as the National Labor
Relations Commission and the Philippine Overseas Employment Agency, created under laws which authorize
summary proceedings, decisions may be reached on the basis of position papers or other documentary evidence
only. They are not bound by technical rules of procedure and evidence. 59 In fact, the hearings before such
agencies do not connote full adversarial proceedings.60 Thus, it is not necessary for the rules to require affiants to
appear and testify and to be cross-examined by the counsel of the adverse party. To require otherwise would
negate the summary nature of the administrative or quasi-judicial proceedings.61 In Atlas Consolidated Mining and
Development Corporation v. Factoran, Jr.,62 this Court stated that:
[I]t is sufficient that administrative findings of fact are supported by evidence, or negatively stated, it is
sufficient that findings of fact are not shown to be unsupported by evidence. Substantial evidence is all that
is needed to support an administrative finding of fact, and substantial evidence is "such relevant evidence
as a reasonable mind might accept as adequate to support a conclusion."
In order to comply with the requirements of due process, what is required, among other things, is that every litigant
be given reasonable opportunity to appear and defend his right and to introduce relevant evidence in his favor.63
III. The Securities Regulations Code did not repeal Sections 8, 30 and 36 of the Revised Securities Act
since said provisions were reenacted in the new law.
The Securities Regulations Code absolutely repealed the Revised Securities Act. While the absolute repeal of a law
generally deprives a court of its authority to penalize the person charged with the violation of the old law prior to its
appeal, an exception to this rule comes about when the repealing law punishes the act previously penalized under
the old law. The Court, in Benedicto v. Court of Appeals, sets down the rules in such instances:64
As a rule, an absolute repeal of a penal law has the effect of depriving the court of its authority to punish a
person charged with violation of the old law prior to its repeal. This is because an unqualified repeal of a
penal law constitutes a legislative act of rendering legal what had been previously declared as illegal, such
that the offense no longer exists and it is as if the person who committed it never did so. There are,
however, exceptions to the rule. One is the inclusion of a saving clause in the repealing statute that
provides that the repeal shall have no effect on pending actions. Another exception is where the repealing
act reenacts the former statute and punishes the act previously penalized under the old law. In such
instance, the act committed before the reenactment continues to be an offense in the statute books and
pending cases are not affected, regardless of whether the new penalty to be imposed is more favorable to
the accused. (Emphasis provided.)
In the present case, a criminal case may still be filed against the respondents despite the repeal, since Sections
8, 65 12,66 26,67 2768 and 2369 of the Securities Regulations Code impose duties that are substantially similar to
Sections 8, 30 and 36 of the repealed Revised Securities Act.
Section 8 of the Revised Securities Act, which previously provided for the registration of securities and the
information that needs to be included in the registration statements, was expanded under Section 12, in connection
with Section 8 of the Securities Regulations Code. Further details of the information required to be disclosed by the
registrant are explained in the Amended Implementing Rules and Regulations of the Securities Regulations Code,
issued on 30 December 2003, particularly Sections 8 and 12 thereof.
Section 30 of the Revised Securities Act has been reenacted as Section 27 of the Securities Regulations Code, still
penalizing an insider's misuse of material and non-public information about the issuer, for the purpose of protecting
public investors. Section 26 of the Securities Regulations Code even widens the coverage of punishable acts,
which intend to defraud public investors through various devices, misinformation and omissions.
Section 23 of the Securities Regulations Code was practically lifted from Section 36(a) of the Revised Securities
Act. Both provisions impose upon (1) a beneficial owner of more than ten percent of any class of any equity security
or (2) a director or any officer of the issuer of such security, the obligation to submit a statement indicating his or
her ownership of the issuer's securities and such changes in his or her ownership thereof.
Clearly, the legislature had not intended to deprive the courts of their authority to punish a person charged with
violation of the old law that was repealed; in this case, the Revised Securities Act.
IV. The SEC retained the jurisdiction to investigate violations of the Revised Securities Act, reenacted in
the Securities Regulations Code, despite the abolition of the PED.
Section 53 of the Securities Regulations Code clearly provides that criminal complaints for violations of rules and
regulations enforced or administered by the SEC shall be referred to the Department of Justice (DOJ) for
preliminary investigation, while the SEC nevertheless retains limited investigatory powers. 70 Additionally, the SEC
may still impose the appropriate administrative sanctions under Section 54 of the aforementioned law. 71
In Morato v. Court of Appeals,72 the cases therein were still pending before the PED for investigation and the SEC
for resolution when the Securities Regulations Code was enacted. The case before the SEC involved an intra-
corporate dispute, while the subject matter of the other case investigated by the PED involved the schemes,
devices, and violations of pertinent rules and laws of the company's board of directors. The enactment of the
Securities Regulations Code did not result in the dismissal of the cases; rather, this Court ordered the transfer of
one case to the proper regional trial court and the SEC to continue with the investigation of the other case.
The case at bar is comparable to the aforecited case. In this case, the SEC already commenced the investigative
proceedings against respondents as early as 1994. Respondents were called to appear before the SEC and
explain their failure to disclose pertinent information on 14 August 1994. Thereafter, the SEC Chairman, having
already made initial findings that respondents failed to make timely disclosures of their negotiations with GHB,
ordered a special investigating panel to hear the case. The investigative proceedings were interrupted only by the
writ of preliminary injunction issued by the Court of Appeals, which became permanent by virtue of the Decision,
dated 20 August 1998, in C.A.-G.R. SP No. 37036. During the pendency of this case, the Securities Regulations
Code repealed the Revised Securities Act. As in Morato v. Court of Appeals, the repeal cannot deprive SEC of its
jurisdiction to continue investigating the case; or the regional trial court, to hear any case which may later be filed
against the respondents.
V. The instant case has not yet prescribed.
Respondents have taken the position that this case is moot and academic, since any criminal complaint that may
be filed against them resulting from the SEC's investigation of this case has already prescribed. 73 They point out
that the prescription period applicable to offenses punished under special laws, such as violations of the Revised
Securities Act, is twelve years under Section 1 of Act No. 3326, as amended by Act No. 3585 and Act No. 3763,
entitled "An Act to Establish Periods of Prescription for Violations Penalized by Special Acts and Municipal
Ordinances and to Provide When Prescription Shall Begin to Act."74 Since the offense was committed in 1994, they
reasoned that prescription set in as early as 2006 and rendered this case moot. Such position, however, is
incongruent with the factual circumstances of this case, as well as the applicable laws and jurisprudence.
It is an established doctrine that a preliminary investigation interrupts the prescription period. 75 A preliminary
investigation is essentially a determination whether an offense has been committed, and whether there is probable
cause for the accused to have committed an offense:
A preliminary investigation is merely inquisitorial, and it is often the only means of discovering the persons
who may be reasonably charged with a crime, to enable the fiscal to prepare the complaint or information.
It is not a trial of the case on the merits and has no purpose except that of determining whether a crime has
been committed or whether there is probable cause to believe that the accused is guilty thereof. 76
Under Section 45 of the Revised Securities Act, which is entitled Investigations, Injunctions and Prosecution of
Offenses, the Securities Exchange Commission (SEC) has the authority to "make such investigations as it deems
necessary to determine whether any person has violated or is about to violate any provision of this Act XXX." After
a finding that a person has violated the Revised Securities Act, the SEC may refer the case to the DOJ for
preliminary investigation and prosecution.
While the SEC investigation serves the same purpose and entails substantially similar duties as the preliminary
investigation conducted by the DOJ, this process cannot simply be disregarded. In Baviera v. Paglinawan, 77 this
Court enunciated that a criminal complaint is first filed with the SEC, which determines the existence of probable
cause, before a preliminary investigation can be commenced by the DOJ. In the aforecited case, the complaint filed
directly with the DOJ was dismissed on the ground that it should have been filed first with the SEC. Similarly, the
offense was a violation of the Securities Regulations Code, wherein the procedure for criminal prosecution was
reproduced from Section 45 of the Revised Securities Act. 78 This Court affirmed the dismissal, which it explained
thus:
The Court of Appeals held that under the above provision, a criminal complaint for violation of any law or
rule administered by the SEC must first be filed with the latter. If the Commission finds that there is
probable cause, then it should refer the case to the DOJ. Since petitioner failed to comply with the
foregoing procedural requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint
in I.S. No. 2004-229.
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must
first be referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of
primary jurisdiction, courts will not determine a controversy involving a question within the jurisdiction of the
administrative tribunal, where the question demands the exercise of sound administrative discretion
requiring the specialized knowledge and expertise of said administrative tribunal to determine technical and
intricate matters of fact. The Securities Regulation Code is a special law. Its enforcement is particularly
vested in the SEC. Hence, all complaints for any violation of the Code and its implementing rules and
regulations should be filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse
the complaint to the DOJ for preliminary investigation and prosecution as provided in Section 53.1 earlier
quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he filed
his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed to the
DOJ in dismissing petitioner's complaint.
The said case puts in perspective the nature of the investigation undertaken by the SEC, which is a requisite before
a criminal case may be referred to the DOJ. The Court declared that it is imperative that the criminal prosecution be
initiated before the SEC, the administrative agency with the special competence.
It should be noted that the SEC started investigative proceedings against the respondents as early as 1994. This
investigation effectively interrupted the prescription period. However, said proceedings were disrupted by a
preliminary injunction issued by the Court of Appeals on 5 May 1995, which effectively enjoined the SEC from filing
any criminal, civil, or administrative case against the respondents herein. 79 Thereafter, on 20 August 1998, the
appellate court issued the assailed Decision in C.A. G.R. SP. No. 37036 ordering that the writ of injunction be made
permanent and prohibiting the SEC from taking cognizance of and initiating any action against herein respondents.
The SEC was bound to comply with the aforementioned writ of preliminary injunction and writ of injunction issued
by the Court of Appeals enjoining it from continuing with the investigation of respondents for 12 years. Any
deviation by the SEC from the injunctive writs would be sufficient ground for contempt. Moreover, any step the SEC
takes in defiance of such orders will be considered void for having been taken against an order issued by a court of
competent jurisdiction.
An investigation of the case by any other administrative or judicial body would likewise be impossible pending the
injunctive writs issued by the Court of Appeals. Given the ruling of this Court in Baviera v. Paglinawan,80 the DOJ
itself could not have taken cognizance of the case and conducted its preliminary investigation without a prior
determination of probable cause by the SEC. Thus, even presuming that the DOJ was not enjoined by the Court of
Appeals from conducting a preliminary investigation, any preliminary investigation conducted by the DOJ would
have been a futile effort since the SEC had only started with its investigation when respondents themselves applied
for and were granted an injunction by the Court of Appeals.
Moreover, the DOJ could not have conducted a preliminary investigation or filed a criminal case against the
respondents during the time that issues on the effectivity of Sections 8, 30 and 36 of the Revised Securities Act and
the PED Rules of Practice and Procedure were still pending before the Court of Appeals. After the Court of Appeals
declared the aforementioned statutory and regulatory provisions invalid and, thus, no civil, criminal or administrative
case may be filed against the respondents for violations thereof, the DOJ would have been at a loss, as there was
no statutory provision which respondents could be accused of violating.
Accordingly, it is only after this Court corrects the erroneous ruling of the Court of Appeals in its Decision dated 20
August 1998 that either the SEC or DOJ may properly conduct any kind of investigation against the respondents for
violations of Sections 8, 30 and 36 of the Revised Securities Act. Until then, the prescription period is deemed
interrupted.
To reiterate, the SEC must first conduct its investigations and make a finding of probable cause in accordance with
the doctrine pronounced in Baviera v. Paglinawan.81 In this case, the DOJ was precluded from initiating a
preliminary investigation since the SEC was halted by the Court of Appeals from continuing with its investigation.
Such a situation leaves the prosecution of the case at a standstill, and neither the SEC nor the DOJ can conduct
any investigation against the respondents, who, in the first place, sought the injunction to prevent their prosecution.
All that the SEC could do in order to break the impasse was to have the Decision of the Court of Appeals
overturned, as it had done at the earliest opportunity in this case. Therefore, the period during which the SEC was
prevented from continuing with its investigation should not be counted against it. The law on the prescription period
was never intended to put the prosecuting bodies in an impossible bind in which the prosecution of a case would be
placed way beyond their control; for even if they avail themselves of the proper remedy, they would still be barred
from investigating and prosecuting the case.
Indubitably, the prescription period is interrupted by commencing the proceedings for the prosecution of the
accused. In criminal cases, this is accomplished by initiating the preliminary investigation. The prosecution of
offenses punishable under the Revised Securities Act and the Securities Regulations Code is initiated by the filing
of a complaint with the SEC or by an investigation conducted by the SEC motu proprio. Only after a finding of
probable cause is made by the SEC can the DOJ instigate a preliminary investigation. Thus, the investigation that
was commenced by the SEC in 1995, soon after it discovered the questionable acts of the respondents, effectively
interrupted the prescription period. Given the nature and purpose of the investigation conducted by the SEC, which
is equivalent to the preliminary investigation conducted by the DOJ in criminal cases, such investigation would
surely interrupt the prescription period.
VI. The Court of Appeals was justified in denying SEC's Motion for Leave to Quash SEC Omnibus Orders
dated 23 October 1995.
The SEC avers that the Court of Appeals erred when it denied its Motion for Leave to Quash SEC Omnibus Orders,
dated 23 October 1995, in the light of its admission that the PED had the sole authority to investigate the present
case. On this matter, this Court cannot agree with the SEC.
In the assailed decision, the Court of Appeals denied the SEC's Motion for Leave to Quash SEC Omnibus Orders,
since it found other issues that were more important than whether or not the PED was the proper body to
investigate the matter. Its refusal was premised on its earlier finding that no criminal, civil, or administrative case
may be filed against the respondents under Sections 8, 30 and 36 of the Revised Securities Act, due to the
absence of any implementing rules and regulations. Moreover, the validity of the PED Rules on Practice and
Procedure was also raised as an issue. The Court of Appeals, thus, reasoned that if the quashal of the orders was
granted, then it would be deprived of the opportunity to determine the validity of the aforementioned rules and
statutory provisions. In addition, the SEC would merely pursue the same case without the Court of Appeals having
determined whether or not it may do so in accordance with due process requirements. Absent a determination of
whether the SEC may file a case against the respondents based on the assailed provisions of the Revised
Securities Act, it would have been improper for the Court of Appeals to grant the SEC's Motion for Leave to Quash
SEC Omnibus Orders.
In all, this Court rules that no implementing rules were needed to render effective Sections 8, 30 and 36 of the
Revised Securities Act; nor was the PED Rules of Practice and Procedure invalid, prior to the enactment of the
Securities Regulations Code, for failure to provide parties with the right to cross-examine the witnesses presented
against them. Thus, the respondents may be investigated by the appropriate authority under the proper rules of
procedure of the Securities Regulations Code for violations of Sections 8, 30, and 36 of the Revised Securities
Act.82
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court hereby REVERSES the assailed
Decision of the Court of Appeals promulgated on 20 August 1998 in CA-G.R. SP No. 37036 and LIFTS the
permanent injunction issued pursuant thereto. This Court further DECLARES that the investigation of the
respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act may be undertaken by the proper
authorities in accordance with the Securities Regulations Code. No costs.
SO ORDERED.

TIO vs. VIDEOGRAM REGULATORY BOARD

G.R. No. L-75697 June 18, 1987

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An
Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry
(hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took effect on
April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No.
1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or
imported blank video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete protection of their rights and that
their "survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were
thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the
operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at
least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement
and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government
revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals,
sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving
the Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the
movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and
occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses
and theaters;
 4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create
an environment conducive to growth and development of all business industries, including the movie
industry which has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire
financial condition of the movie industry upon which more than 75,000 families and 500,000 workers
depend for their livelihood, but also provide an additional source of revenue for the Government, and at the
same time rationalize the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear
and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the
Constitution for the State to support the rearing of the youth for civic efficiency and the development of
moral character and promote their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant
malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted with
dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is
a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the
due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon
him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the
title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute
wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the
subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general subject
and title. 2An act having a single general subject, indicated in the title, may contain any number of provisions, no
matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and
may be considered in furtherance of such subject by providing for the method and means of carrying out the
general object." 3 The rule also is that the constitutional requirement as to the title of a bill should not be so narrowly
construed as to cripple or impede the power of legislation. 4 It should be given practical rather than technical
construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without
merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to
the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as
the case may be, for every sale, lease or disposition of a videogram containing a reproduction of any
motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue
to the province, and the other fifty percent (50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the
Metropolitan Manila Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and title.
As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout the
DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and
rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those
preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the
creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its
Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or
that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so
unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax,
the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive
taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization
that earnings of videogram establishments of around P600 million per annum have not been subjected to tax,
thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for
every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne
by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of
the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed
uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the
tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". 12 Taxation has been made the implement of the state's
police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former
President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the
President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim Batasang
Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in
his judgment requires immediate action, he may, in order to meet the exigency, issue the necessary decrees,
orders, or letters of instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitated bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve
resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The
grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies and
units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and
units to perform enforcement functions for the Board" is not a delegation of the power to legislate but merely a
conferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction is
between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and
conferring authority or discretion as to its execution to be exercised under and in pursuance of the law. The first
cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very language of the decree, the
authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the BOARD." That the grant of such authority might be the
source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality occur,
the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one
which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE in
providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the
effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of videograms, including
videotapes, discs, cassettes or other technical improvements or variations thereof, before they could be
sold, leased, or otherwise disposed of. Thereafter any videogram found in the possession of any person
engaged in the videogram business without the required proof of registration by the BOARD, shall be prima
facie evidence of violation of the Decree, whether the possession of such videogram be for private showing
and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of any
videogram cannot be presented and thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law providing that the
presumption of innocence may be overcome by a contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be sufficient to overcome such presumption of
innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have
been proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift
the burden of proof provided there be a rational connection between the facts proved and the ultimate facts
presumed so that the inference of the one from proof of the others is not unreasonable and arbitrary
because of lack of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection between the fact proved,
which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the fact that
the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period counted from its
effectivity and is, therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. While
the underlying objective of the DECREE is to protect the moribund movie industry, there is no question that public
welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the erosion
of the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes
containing pornographic films and films with brutally violent sequences; and losses in government revenues due to
the drop in theatrical attendance, not to mention the fact that the activities of video establishments are virtually
untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the
contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE.
These considerations, however, are primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the main
wisely allocated the respective authority of each department and confined its jurisdiction to such a sphere.
There would then be intrusion not allowable under the Constitution if on a matter left to the discretion of a
coordinate branch, the judiciary would substitute its own. If there be adherence to the rule of law, as there
ought to be, the last offender should be courts of justice, to which rightly litigants submit their controversy
precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity
of the challenged provision likewise insofar as there may be objections, even if valid and cogent on its
wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no
clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.

RABOR vs. CIVIL SERVICE COMMISSION

G.R. No. 111812 May 31, 1995

Petitioner Dionisio M. Rabor is a Utility Worker in the Office of the Mayor, Davao City. He entered the government
service as a Utility worker on 10 April 1978 at the age of 55 years.
Sometime in May 1991,1 Alma, D. Pagatpatan, an official in the Office of the Mayor of Davao City, advised Dionisio
M. Rabor to apply for retirement, considering that he had already reached the age of sixty-eight (68) years and
seven (7) months, with thirteen (13) years and one (1) month of government service. Rabor responded to this
advice by exhibiting a "Certificate of Membership"2 issued by the Government Service Insurance System ("GSIS")
and dated 12 May 1988. At the bottom of this "Certificate of Membership" is a typewritten statement of the following
tenor: "Service extended to comply 15 years service reqts." This statement is followed by a non-legible initial with
the following date "2/28/91."
Thereupon, the Davao City Government, through Ms. Pagatpatan, wrote to the Regional Director of the Civil
Service Commission, Region XI, Davao City ("CSRO-XI"), informing the latter of the foregoing and requesting
advice "as to what action [should] be taken on this matter."
In a letter dated 26 July 1991, Director Filemon B. Cawad of CSRO-XI advised Davao City Mayor Rodrigo R.
Duterte as follows:
Please be informed that the extension of services of Mr. Rabor is contrary to M.C. No. 65 of the
Office of the President, the relevant portion of which is hereunder quoted:
Officials and employees who have reached the compulsory retirement age of 65
years shall not be retained the service, except for extremely meritorious reasons in
which case the retention shall not exceed six (6) months.
IN VIEW WHEREFORE, please be advised that the services of Mr. Dominador [M.] Rabor as Utility
Worker in that office, is already non-extend[i]ble.3
Accordingly, on 8 August l991, Mayor Duterte furnished a copy of the 26 July 1991 letter of Director Cawad to
Rabor and advised him "to stop reporting for work effective August 16, 1991."4
Petitioner Rabor then sent to the Regional Director, CSRO-XI, a letter dated 14 August 1991, asking for extension
of his services in the City Government until he "shall have completed the fifteen (15) years service [requirement] in
the Government so that [he] could also avail of the benefits of the retirement laws given to employees of the
Government." The extension he was asking for was about two (2) years. Asserting that he was "still in good health
and very able to perform the duties and functions of [his] position as Utility Worker," Rabor sought "extension of
[his] service as an exception to Memorandum Circular No. 65 of the Office of the President." 5 This request was
denied by Director Cawad on 15 August 1991.
Petitioner Rabor next wrote to the Office of the President on 29 January 1992 seeking reconsideration of the
decision of Director Cawad, CSRO-XI. The Office of the President referred Mr. Rabor's letter to the Chairman of the
Civil Service Commission on 5 March 1992.
In its Resolution No. 92-594, dated 28 April 1992, the Civil Service Commission dismissed the appeal of Mr. Rabor
and affirmed the action of Director Cawad embodied in the latter's letter of 26 July 1991. This Resolution stated in
part:
In his appeal, Rabor requested that he be allowed to continue rendering services as Utility Worker
in order to complete the fifteen (15) year service requirement under P.D. 1146.
CSC Memorandum Circular No. 27, s. 1990 provides, in part:
1. Any request for extension of service of compulsory retirees to complete the
fifteen years service requirement for retirement shall be allowed only to permanent
appointees in the career service who are regular members of the Government
 Service Insurance System (GSIS) and shall be granted for a period of not
exceeding one (1) year.
Considering that as early as October 18, 1988, Rabor was already due for retirement, his request
for further extension of service cannot be given due course.6 (Emphasis in the original)
On 28 October 1992, Mr. Rabor sought reconsideration of Resolution No. 92-594 of the Civil Service Commission
this time invoking the Decision of this Court in Cena v. Civil Service Commission.7 Petitioner also asked for
reinstatement with back salaries and benefits, having been separated from the government service effective 16
August 1991. Rabor's motion for reconsideration was denied by the Commission.
Petitioner Rabor sent another letter dated 16 April 1993 to the Office of the Mayor, Davao City, again requesting
that he be allowed to continue rendering service to the Davao City Government as Utility Worker in order to
complete the fifteen (15) years service requirement under P.D. No. 1146. This request was once more denied by
Mayor Duterte in a letter to petitioner dated 19 May 1993. In this letter, Mayor Duterte pointed out that,
under Cena grant of the extension of service was discretionary on the part of the City Mayor, but that he could not
grant the extension requested. Mayor Duterte's letter, in relevant part, read:
The matter was referred to the City Legal Office and the Chairman of the Civil Service Commission,
in the advent of the decision of the Supreme Court in the Cena vs. CSC, et al. (G.R. No. 97419
dated July 3, 1992), for legal opinion. Both the City Legal Officer and the Chairman of the Civil
Service Commission are one in these opinion that extending you an appointment in order that you
may be able to complete the fifteen-year service requirement is discretionary [on the part of] the
City Mayor.
Much as we desire to extend you an appointment but circumstances are that we can no longer do
so. As you are already nearing your 70th birthday may no longer be able to perform the duties
attached to your position. Moreover, the position you had vacated was already filled up.
We therefore regret to inform you that we cannot act favorably on your request. 8 (Emphases
supplied)
At this point, Mr. Rabor decided to come to this Court. He filed a Letter/Petition dated 6 July 1993 appealing from
Civil Service Resolution No. 92-594 and from Mayor Duterte's letter of 10 May 1993.
The Court required petitioner Rabor to comply with the formal requirements for instituting a special civil action
of certiorari to review the assailed Resolution of the Civil Service Commission. In turn, the Commission was
required to comment on petitioner's Letter/Petition.9 The Court subsequently noted petitioner's Letter of 13
September 1993 relating to compliance with the mentioned formal requirements and directed the Clerk of Court to
advise petitioner to engage the services of counsel or to ask for legal assistance from the Public Attorney's Office
(PAO). 10
The Civil Service Commission, through the Office of the Solicitor General, filed its comment on 16 November 1993.
The Court then resolved to give due course to the Petition and required the parties to file memoranda. Both the
Commission and Mr. Rabor (the latter through PAO counsel) did so.
In this proceeding, petitioner Rabor contends that his claim falls squarely within the ruling of this Court in Cena v.
Civil Service Commission. 11
Upon the other hand, the Commission seeks to distinguish this case from Cena. The Commission, through the
Solicitor General, stressed that in Cena, this Court had ruled that the employer agency, the Land Registration
Authority of the Department of Justice, was vested with discretion to grant to Cena the extension requested by him.
The Land Registration Authority had chosen not to exercise its discretion to grant or deny such extension. In
contrast, in the instant case, the Davao City Government did exercise its discretion on the matter and decided to
deny the extension sought by petitioner Rabor for legitimate reasons.
While the Cena decision is barely three (3) years old, the Court considers that it must reexamine the doctrine
of Cena and the theoretical and policy underpinnings thereof. 12
We start by recalling the factual setting of Cena.
Gaudencio Cena was appointed Registrar of the Register of Deeds of Malabon, Metropolitan Manila, on 16 July
1987. He reached the compulsory retirement age of sixty-five (65) years on 22 January 1991. By the latter date, his
government service would have reached a total of eleven (11) years, nine (9) months and six (6) days. Before
reaching his 65th birthday, Cena requested the Secretary of Justice, through the Administrator of the Land
Registration Authority ("LRA") that he be allowed to extend his service to complete the fifteen-year service
requirement to enable him to retire with the full benefit of an Old-Age Pension under Section 11 (b) of P.D. No.
1146. If Cena's request were granted, he would complete fifteen (15) years of government service on 15 April 1994,
at the age of sixty-eight (68) years.
The LRA Administrator sought a ruling from the Civil Service Commission on whether or not Cena's request could
be granted considering that Cena was covered by Civil Service Memorandum No. 27, Series of 1990. On 17
October 1990, the Commission allowed Cena a one (1) year extension of his service from 22 January 1991 to 22
January 1992 under its Memorandum Circular No. 27. Dissatisfied, Cena moved for reconsideration, without
success. He then came to this Court, claiming that he was entitled to an extension of three (3) years, three (3)
months and twenty-four (24) days to complete the fifteen-year service requirement for retirement with full benefits
under Section 11 (b) of P.D. No. 1146.
This Court granted Cena' s petition in its Decision of 3 July 1992. Speaking through Mr. Justice Medialdea, the
Court held that a government employee who has reached the compulsory retirement age of sixty-five (65) years,
but at the same time has not yet completed fifteen (15) years of government service required under Section 11 (b)
of P.D. No. 1146 to qualify for the Old-Age Pension Benefit, may be granted an extension of his government
service for such period of time as may be necessary to "fill up" or comply with the fifteen (15)-year service
requirement. The Court also held that the authority to grant the extension was a discretionary one vested in the
head of the agency concerned. Thus the Court concluded:
Accordingly, the Petition is GRANTED. The Land Registration Authority (LRA) and Department of
Justice has the discretion to allow petitioner Gaudencio Cena to extend his 11 years, 9 months and
6 days of government to complete the fifteen-year service so that he may retire with full benefits
under Section 11, paragraph (b) of P.D. 1146.13 (Emphases supplied)
The Court reached the above conclusion primarily on the basis of the "plain and ordinary meaning" of Section 11
(b) of P.D. No. 1146. Section 11 may be quoted in its entirety:
Sec. 11 Conditions for Old-Age Pension. — (a) Old-Age Pension shall be paid to a member who
(1) has at least fifteen (15) years of service;
(2) is at least sixty (60) years of age; and
(3) is separated from the service.
(b) unless the service is extended by appropriate authorities, retirement shall be compulsory for an
employee at sixty-five-(65) years of age with at least fifteen (15) years of service; Provided, that if
he has less than fifteen (15) years of service, he shall he allowed to continue in the service to
completed the fifteen (15) years. (Emphases supplied)
The Court went on to rely upon the canon of liberal construction which has often been invoked in respect of
retirement statutes:
Being remedial in character, a statute granting a pension or establishing [a] retirement plan should
be liberally construed and administered in favor of persons intended to be benefitted thereby. The
liberal approach aims to achieve the humanitarian purposes of the law in order that efficiency,
security and well-being of government employees may be enhanced.14 (Citations omitted)
While Section 11 (b) appeared cast in verbally unqualified terms, there were (and still are) two (2) administrative
issuances which prescribe limitations on the extension of service that may be granted to an employee who has
reached sixty-five (65) years of age.
The first administrative issuance is Civil Service Commission Circular No. 27, Series of 1990, which should be
quoted in its entirety:
TO : ALL HEADS OF DEPARTMENTS, BUREAUS AND AGENCIES OF THE NATIONAL/LOCAL
GOVERNMENTS INCLUDING GOVERNMENT- OWNED AND/OR CONTROLLED
CORPORATIONS WITH ORIGINAL CHARTERS.
SUBJECT : Extension of Service of Compulsory Retiree to Complete the Fifteen Years Service
Requirement for Retirement Purposes.
Pursuant to CSC Resolution No. 90-454 dated May 21, 1990, the Civil Service Commission hereby
adopts and promulgates the following policies and guidelines in the extension of services of
compulsory retirees to complete the fifteen years service requirement for retirement purposes:
 1. Any request for the extension of service of compulsory retirees to complete the
fifteen (15) years service requirement for retirement shall be allowed only to
permanent appointees in the career service who are regular members of the
Government Service Insurance System (GSIS), and shall be granted for a period
not exceeding one (1) year.
2. Any request for the extension of service of compulsory retiree to complete the
fifteen (15) years service requirement for retirement who entered the government
service at 57 years of age or over upon prior grant of authority to appoint him or
her, shall no longer be granted.
3. Any request for the extension of service to complete the fifteen (15) years
service requirement of retirement shall be filled not later than three (3) years prior
to the date of compulsory retirement.
4. Any request for the extension of service of a compulsory retiree who meets the
minimum number of years of service for retirement purposes may be granted for
six (6) months only with no further extension.
This Memorandum Circular shall take effect immediately. (Emphases supplied)
The second administrative issuance — Memorandum Circular No. 65 of the Office of the President, dated 14 June
1988 — provides:
xxx xxx xxx
WHEREAS, this Office has been. receiving requests for reinstatement and/or retention in the
service of employees who have reached the compulsory retirement age of 65 years, despite the
strict conditions provided for in Memorandum Circular No. 163, dated March 5, 1968, as amended.
WHEREAS, the President has recently adopted a policy to adhere more strictly to the law providing
for compulsory retirement age of 65 years and, in extremely meritorious cases, to limit the service
beyond the age of 65 years to six (6) months only.
WHEREFORE, the pertinent provision of Memorandum Circular No. 163 or on the retention in the
service of officials or employees who have reached the compulsory retirement age of 65 years, is
hereby amended to read as follows:
Officials or employees who have reached the compulsory retirement age of 65
years shall not be retained in the service, except for extremely meritorious
reasons in which case the retention shall not exceed six (6) months.
All heads of departments, bureaus, offices and instrumentalities of the government including
government-owned or controlled corporations, are hereby enjoined to require their respective
offices to strictly comply with this circular.
This Circular shall take effect immediately.
By authority of
the President
(Sgd.)
CATALINO
MACARAIG, JR.
Executive
Secretary
Manila, June 14, 1988.15 (Emphasis supplied)
Medialdea, J. resolved the challenges posed by the above two (2) administrative regulations by, firstly, considering
as invalid Civil Service Memorandum No. 27 and, secondly, by interpreting the Office of the President's
Memorandum Circular No. 65 as inapplicable to the case of Gaudencio T. Cena.
We turn first to the Civil Service Commission's Memorandum Circular No. 27. Medialdea, J. wrote:
The Civil Service Commission Memorandum Circular No. 27 being in the nature of an
administrative regulation, must be governed by the principle that administrative regulations adopted
under legislative authority by a particular department must be in harmony with the provisions of the
 law, and should be for the sole purpose of carrying into effect its general provisions (People v.
Maceren, G.R. No. L-32166, October 18, 1977, 79 SCRA 450; Teoxon v. Members of the Board of
Administrators, L-25619, June 30, 1970, 33 SCRA 585; Manuel v. General Auditing Office, L-
28952, December 29, 1971, 42 SCRA 660; Deluao v. Casteel, L-21906, August 29, 1969, 29
SCRA 350). . . . . The rule on limiting to one the year the extension of service of an employee who
has reached the compulsory retirement age of sixty-five (65) years, but has less than fifteen (15)
years of service under Civil Service Memorandum Circular No. 27, S. 1990, cannot likewise be
accorded validity because it has no relationship or connection with any provision of P.D. 1146
supposed to be carried into effect. The rule was an addition to or extension of the law, not merely a
mode of carrying it into effect. The Civil Service Commission has no power to supply perceived
omissions in P.D. 1146. 16 (Emphasis supplied)
It will be seen that Cena, in striking down Civil Service Commission Memorandum No. 27, took a very narrow view
on the question of what subordinate rule-making by an administrative agency is permissible and valid. That
restrictive view must be contrasted with this Court's earlier ruling in People v. Exconde, 17 where Mr. Justice J.B.L.
Reyes said:
It is well established in this jurisdiction that, while the making of laws is a non-delegable activity that
corresponds exclusively to Congress, nevertheless, the latter may constitutionally delegate
authority and promulgate rules and regulations to implement a given legislation and effectuate its
policies, for the reason that the legislature often finds it impracticable (if not impossible) to
anticipate and provide for the multifarious and complex situations that may be met in carrying the
law into effect. All that is required is that the regulation should be germane to the objects and
purposes of the law; that the regulation be not in contradiction with it, but conform to standards that
the law prescribes.18 (Emphasis supplied)
In Tablarin v. Gutierrez, 19 the Court, in sustaining the validity of a MECS Order which established passing a
uniform admission test called the National Medical Admission Test (NMAT) as a prerequisite for eligibility for
admission into medical schools in the Philippines, said:
The standards set for subordinate legislation in the exercise of rule making authority by an
administrative agency like the Board of Medical Education are necessarily broad and highly
abstract. As explained by then Mr. Justice Fernando in Edu v. Ericta (35 SCRA 481 [1970]) —
The standards may be either expressed or implied. If the former, the non-
delegation objection is easily met. The Standard though does not have to be
spelled out specifically. It could be implied from the policy and purpose of the act
considered as a whole. In the Reflector Law, clearly the legislative objective is
public safety. What is sought to be attained in Calalang v. William is "safe transit
upon the roads."
We believe and so hold that the necessary standards are set forth in Section 1 of the 1959 Medical
Act: "the standardization and regulation of medical education" and in Section 5 (a) and 7 of the
same Act, the body of the statute itself, and that these considered together are sufficient
compliance with the requirements of the non-delegation principle.20 (Citations omitted; emphasis
partly in the original and partly supplied)
In Edu v. Ericta, 21 then Mr. Justice Fernando stressed the abstract and very general nature of the standards which
our Court has in prior case law upheld as sufficient for purposes of compliance with the requirements for validity of
subordinate or administrative rule-making:
This Court has considered as sufficient standards, "public welfare," (Municipality of Cardona v.
Municipality of Binangonan, 36 Phil. 547 [1917]); "necessary in the interest of law and order," (Rubi
v. Provincial Board, 39 Phil. 660 [1919]); "public interest," (People v. Rosenthal, 68 Phil. 328
[1939]); and "justice and equity and substantial merits of the case," (International Hardwood v.
Pangil Federation of Labor, 17 Phil. 602 [1940]). 22 (Emphasis supplied)
Clearly, therefore, Cena when it required a considerably higher degree of detail in the statute to be implemented,
went against prevailing doctrine. It seems clear that if the governing or enabling statute is quite detailed and
specific to begin with, there would be very little need (or occasion) for implementing administrative regulations. It is,
however, precisely the inability of legislative bodies to anticipate all (or many) possible detailed situations in respect
of any relatively complex subject matter, that makes subordinate, delegated rule-making by administrative agencies
so important and unavoidable. All that may be reasonably; demanded is a showing that the delegated legislation
consisting of administrative regulations are germane to the general purposes projected by the governing or
enabling statute. This is the test that is appropriately applied in respect of Civil Service Memorandum Circular No.
27, Series of 1990, and to this test we now turn.
We consider that the enabling statute that should appropriately be examined is the present Civil Service law —
found in Book V, Title I, Subtitle A, of Executive Order No. 292 dated 25 July 1987, otherwise known as the
Administrative Code of 1987 — and not alone P.D. No. 1146, otherwise known as the "Revised Government
Service Insurance Act of 1977." For the matter of extension of service of retirees who have reached sixty-five (65)
years of age is an area that is covered by both statutes and not alone by Section 11 (b) of P.D. 1146. This is crystal
clear from examination of many provisions of the present civil service law.
Section 12 of the present Civil Service law set out in the 1987 Administrative Code provides, in relevant part, as
follows:
Sec. 12 Powers and Functions. — The [Civil Service] Commission shall have the following powers
and functions:
xxx xxx xxx
(2) Prescribe, amend and enforce rules and regulations for carrying into effect the provisions of the
Civil Service Law and other pertinent laws;
(3) Promulgate policies, standards and guidelines for the Civil Service and adopt plans and
programsto promote economical, efficient and effective personnel administration in the
government;
xxx xxx xxx
(10) Formulate, administer and evaluate programs relative to the development and retention of
aqualified and competent work force in the public service;
xxx xxx xxx
(14) Take appropriate action on all appointments and other personnel matters in the Civil
Service including extension of service beyond retirement age;
xxx xxx xxx
(17) Administer the retirement program for government officials and employees, and accredit
government services and evaluate qualifications for retirement;
xxx xxx xxx
(19) Perform all functions properly belonging to a central personnel agency and such other
functions as may be provided by law. (Emphasis supplied)
It was on the bases of the above quoted provisions of the 1987 Administrative Code that the Civil Service
Commission promulgated its Memorandum Circular No. 27. In doing so, the Commission was acting as "the central
personnel agency of the government empowered to promulgate policies, standards and guidelines for efficient,
responsive and effective personnel administration in the government." 23 It was also discharging its function of
"administering the retirement program for government officials and employees" and of "evaluat[ing] qualifications for
retirement."
In addition, the Civil Service Commission is charged by the 1987 Administrative Code with providing leadership and
assistance "in the development and retention of qualified and efficient work force in the Civil Service" (Section 16
[10]) and with the "enforcement of the constitutional and statutory provisions, relative to retirement and the
regulation for the effective implementation of the retirement of government officials and employees" (Section 16
[14]).
We find it very difficult to suppose that the limitation of permissible extensions of service after an employee has
reached sixty-five (65) years of age has no reasonable relationship or is not germane to the foregoing provisions of
the present Civil Service Law. The physiological and psychological processes associated with ageing in human
beings are in fact related to the efficiency and quality of the service that may be expected from individual persons.
The policy considerations which guided the Civil Service Commission in limiting the maximum extension of service
allowable for compulsory retirees, were summarized by Griño-Aquino, J. in her dissenting opinion in Cena:
Worth pondering also are the points raised by the Civil Service Commission that extending the
service of compulsory retirees for longer than one (1) year would: (1) give a premium to late-
comers in the government service and in effect discriminate against those who enter the service at
 a younger age; (2) delay the promotion of the latter and of next-in-rank employees; and
(3) prejudice the chances for employment of qualified young civil service applicants who have
already passed the various government examination but must wait for jobs to be vacated by
"extendees" who have long passed the mandatory retirement age but are enjoying extension of
their government service to complete 15 years so they may qualify for old-age
pension. 24 (Emphasis supplied).
Cena laid heavy stress on the interest of retirees or would be retirees, something that is, in itself, quite appropriate.
At the same time, however, we are bound to note that there should be countervailing stress on the interests of the
employer agency and of other government employees as a whole. The results flowing from the striking down of the
limitation established in Civil Service Memorandum Circular No. 27 may well be "absurd and inequitable," as
suggested by Mme. Justice Griño-Aquino in her dissenting opinion. An employee who has rendered only three (3)
years of government service at age sixty-five (65) can have his service extended for twelve (12) years and finally
retire at the age of seventy-seven (77). This reduces the significance of the general principle of compulsory
retirement at age sixty-five (65) very close to the vanishing point.
The very real difficulties posed by the Cena doctrine for rational personnel administration and management in the
Civil Service, are aggravated when Cena is considered together with the case of Toledo v. Civil Service
Commission. 25 Toledo involved the provisions of Rule III, Section 22, of the Civil Service Rules on Personnel
Action and Policies (CSRPAP) which prohibited the appointment of persons fifty-seven (57) years old or above in
government service without prior approval of the Civil Service Commission. Civil Service Memorandum Circular No.
5, Series of 1983 provided that a person fifty-seven (57) years of age may be appointed to the Civil Service
provided that the exigencies of the government service so required and provided that the appointee possesses
special qualifications not possessed by other officers or employees in the Civil Service and that the vacancy cannot
be filled by promotion of qualified officers or employees of the Civil Service. Petitioner Toledo was appointed
Manager of the Education and Information Division of the Commission on Elections when he was almost fifty-nine
(59) years old. No authority for such appointment had been obtained either from the President of the Philippines or
from the Civil Service Commission and the Commission found that the other conditions laid down in Section 22 of
Rule III, CSRPAP, did not exist. The Court nevertheless struck down Section 22, Rule III on the same exceedingly
restrictive view of permissible administrative legislation that Cena relied on.26
When one combines the doctrine of Toledo with the ruling in Cena, very strange results follow. Under these
combined doctrines, a person sixty-four (64) years of age may be appointed to the government service and one (1)
year later may demand extension of his service for the next fourteen (14) years; he would retire at age seventy-nine
(79). The net effect is thus that the general statutory policy of compulsory retirement at sixty-five (65) years is
heavily eroded and effectively becomes unenforceable. That general statutory policy may be seen to embody the
notion that there should be a certain minimum turn-over in the government service and that opportunities for
government service should be distributed as broadly as possible, specially to younger people, considering that the
bulk of our population is below thirty (30) years of age. That same general policy also reflects the life expectancy of
our people which is still significantly lower than the life expectancy of, e.g., people in Northern and Western Europe,
North America and Japan.
Our conclusion is that the doctrine of Cena should be and is hereby modified to this extent: that Civil Service
Memorandum Circular No. 27, Series of 1990, more specifically paragraph (1) thereof, is hereby declared valid and
effective. Section 11 (b) of P.D. No. 1146 must, accordingly, be read together with Memorandum Circular No. 27.
We reiterate, however, the holding in Cena that the head of the government agency concerned is vested with
discretionary authority to allow or disallow extension of the service of an official or employee who has reached
sixty-five (65) years of age without completing fifteen (15) years of government service; this discretion is,
nevertheless, to be exercised conformably with the provisions of Civil Service Memorandum Circular No. 27, Series
of 1990.
We do not believe it necessary to deal specifically with Memorandum Circular No. 65 of the Office of the President
dated 14 June 1988. It will be noted from the text quoted supra (pp. 11-12) that the text itself of Memorandum
Circular No. 65 (and for that matter, that of Memorandum Circular No. 163, also of the Office of the President,
dated 5 March 1968) 27 does not purport to apply only to officers or employees who have reached the age of sixty-
five (65) years and who have at least fifteen (l5) years of government service. We noted earlier
that Cena interpreted Memorandum Circular No. 65 as referring only to officers and employees who have both
reached the compulsory retirement age of sixty-five (65) and completed the fifteen (15) years of government
service. Cena so interpreted this Memorandum Circular precisely because Cena had reached the conclusion that
employees who have reached sixty-five (65) years of age, but who have less than fifteen (15) years of government
service, may be allowed such extension of service as may be needed to complete fifteen (15) years of service. In
other words, Cena read Memorandum Circular No. 65 in such a way as to comfort with Cena's own conclusion
reached without regard to that Memorandum Circular. In view of the conclusion that we today reached in the instant
case, this last ruling of Cena is properly regarded as merely orbiter.
We also do not believe it necessary to determine whether Civil Service Memorandum Circular No. 27 is fully
compatible with Office of the President's Memorandum Circular No. 65; this question must be reserved for detailed
analysis in some future justiciable case.
Applying now the results of our reexamination of Cena to the instant case, we believe and so hold that Civil Service
Resolution No. 92-594 dated 28 April 1992 dismissing the appeal of petitioner Rabor and affirming the action of
CSRO-XI Director Cawad dated 26 July 1991, must be upheld and affirmed.
ACCORDINGLY, for all the foregoing, the Petition for Certiorari is hereby DISMISSED for lack of merit. No
pronouncement as to costs.
SO ORDERED.

PHILIPPINE AIRLINES, INC. vs. CIVIL AERONAUTICS BOARD

G.R. No. 119528. March 26, 1997

DECISION
This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to prohibit
respondent Civil Aeronautics Board from exercising jurisdiction over private respondent's Application for the
issuance of a Certificate of Public Convenience and Necessity, and to annul and set aside a temporary operating
permit issued by the Civil Aeronautics Board in favor of Grand International Airways (GrandAir, for brevity) allowing
the same to engage in scheduled domestic air transportation services, particularly the Manila-Cebu, Manila-Davao,
and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is the fact that
GrandAir does not possess a legislative franchise authorizing it to engage in air transportation service within the
Philippines or elsewhere. Such franchise is, allegedly, a requisite for the issuance of a Certificate of Public
Convenience or Necessity by the respondent Board, as mandated under Section 11, Article XII of the Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a requirement for the
issuance of a Certificate of Public Convenience and Necessity or a Temporary Operating Permit, following the
Court's pronouncements in the case of Albano vs. Reyes,[1] as restated by the Court of Appeals in Avia Filipinas
International vs. Civil Aeronautics Board [2] and Silangan Airways, Inc. vs. Grand International Airways, Inc., and the
Hon. Civil Aeronautics Board.[3]
On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience and
Necessity with the Board, which application was docketed as CAB Case No. EP-12711.[4] Accordingly, the Chief
Hearing Officer of the CAB issued a Notice of Hearing setting the application for initial hearing on December 16,
1994, and directing GrandAir to serve a copy of the application and corresponding notice to all scheduled Philippine
Domestic operators. On December 14, 1994, GrandAir filed its Compliance, and requested for the issuance of a
Temporary Operating Permit. Petitioner, itself the holder of a legislative franchise to operate air transport services,
filed an Opposition to the application for a Certificate of Public Convenience and Necessity on December 16, 1995
on the following grounds:
"A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a franchise to
operate from Congress.
B. The petitioner's application is deficient in form and substance in that:
1. The application does not indicate a route structure including a computation of trunkline, secondary and rural
available seat kilometers (ASK) which shall always be maintained at a monthly level at least 5% and 20% of the
ASK offered into and out of the proposed base of operations for rural and secondary, respectively.
2. It does not contain a project/feasibility study, projected profit and loss statements, projected balance sheet,
insurance coverage, list of personnel, list of spare parts inventory, tariff structure, documents supportive of financial
capacity, route flight schedule, contracts on facilities (hangars, maintenance, lot) etc.
C. Approval of petitioner's application would violate the equal protection clause of the constitution.
D. There is no urgent need and demand for the services applied for.
E. To grant petitioner's application would only result in ruinous competition contrary to Section 4(d) of R.A. 776."[5]
At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the Board to hear
the application because GrandAir did not possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's Opposition.
Pertinent portions of the Order read:
"PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a
franchise to operate from Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina vs. CAB, CA G.R.
No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. 776, the Board possesses this specific power and
duty.
In view thereof, the opposition of PAL on this ground is hereby denied.
SO ORDERED."
Meantime, on December 22, 1994, petitioner this time, opposed private respondent's application for a
temporary permit maintaining that:
"1. The applicant does not possess the required fitness and capability of operating the services applied for under
RA 776; and,
2. Applicant has failed to prove that there is clear and urgent public need for the services applied for." [6]
On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a
Temporary Operating Permit in favor of Grand Air [7] for a period of three months, i.e., from December 22, 1994 to
March 22, 1994. Petitioner moved for the reconsideration of the issuance of the Temporary Operating Permit on
January 11, 1995, but the same was denied in CAB Resolution No. 02 (95) on February 2, 1995. [8] In the said
Resolution, the Board justified its assumption of jurisdiction over GrandAir's application.
"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776 as follows:
'(c) The Board shall have the following specific powers and duties:
(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, alter, modify, cancel,
suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own initiative, any temporary operating
permit or Certificate of Public Convenience and Necessity; Provided, however; that in the case of foreign air
carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines."
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme Court held that the
CAB can even on its own initiative, grant a TOP even before the presentation of evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on October 30, 1991, held
that in accordance with its mandate, the CAB can issue not only a TOP but also a Certificate of Public Convenience
and Necessity (CPCN) to a qualified applicant therefor in the absence of a legislative franchise, citing therein as
basis the decision of Albano vs. Reyes (175 SCRA 264) which provides (inter alia) that:
a) Franchises by Congress are not required before each and every public utility may operate when the law has
granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain
public utilities;
b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise, certificate or other form of
authorization for the operation of a public utility does not necessarily imply that only Congress has the power to
grant such authorization since our statute books are replete with laws granting specified agencies in the Executive
Branch the power to issue such authorization for certain classes of public utilities.
WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section 2.1 that a
minimum of two (2) operators in each route/link shall be encouraged and that routes/links presently serviced by
only one (1) operator shall be open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on January 05, 1995
on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand International Airways, Inc. alleging
among others that the CAB has no such jurisdiction, is hereby DENIED, as it hereby denied, in view of the
foregoing and considering that the grounds relied upon by the movant are not indubitable."
 On March 21, 1995, upon motion by private respondent, the temporary permit was extended for a period of six
(6) months or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking cognizance of
GrandAirs application for the issuance of a Certificate of Public Convenience and Necessity, and in issuing a
temporary operating permit in the meantime, since GrandAir has not been granted and does not possess a
legislative franchise to engage in scheduled domestic air transportation. A legislative franchise is necessary before
anyone may engage in air transport services, and a franchise may only be granted by Congress. This is the
meaning given by the petitioner upon a reading of Section 11, Article XII,[9] and Section 1, Article VI,[10] of the
Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for opinion on the necessity of a legislative franchise before the Civil
Aeronautics Board (CAB) may issue a Certificate of Public Convenience and Necessity and/or permit to engage in
air commerce or air transportation to an individual or entity.
You state that during the hearing on the application of Cebu Air for a congressional franchise, the House
Committee on Corporations and Franchises contended that under the present Constitution, the CAB may not issue
the abovestated certificate or permit, unless the individual or entity concerned possesses a legislative franchise.
You believe otherwise, however, for the reason that under R.A. No. 776, as amended, the CAB is explicitly
empowered to issue operating permits or certificates of public convenience and necessity and that this statutory
provision is not inconsistent with the current charter.
We concur with the view expressed by the House Committee on Corporations and Franchises. In an opinion
rendered in favor of your predecessor-in-office, this Department observed that,-
xxx it is useful to note the distinction between the franchise to operate and a permit to
commence operation. The former is sovereign and legislative in nature; it can be conferred
only by the lawmaking authority (17 W and P, pp. 691-697). The latter is administrative and
regulatory in character (In re Application of Fort Crook-Bellevue Boulevard Line, 283 NW 223);
it is granted by an administrative agency, such as the Public Service Commission [now Board
of Transportation], in the case of land transportation, and the Civil Aeronautics Board, in case
of air services. While a legislative franchise is a pre-requisite to a grant of a certificate of public
convenience and necessity to an airline company, such franchise alone cannot constitute the
authority to commence operations, inasmuch as there are still matters relevant to such
operations which are not determined in the franchise, like rates, schedules and routes, and
which matters are resolved in the process of issuance of permit by the administrative.
(Secretary of Justice opn No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public convenience and necessity is an authorization issued by
the appropriate governmental agency for the operation of public services for which a franchise is required by law
(Almario, Transportation and Public Service Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4,
1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a business activity or
enterprise of a public nature, whereas a certificate of public convenience and necessity is a regulatory measure
which constitutes the franchises authority to commence operations. It is thus logical that the grant of the former
should precede the latter.
Please be guided accordingly.
(SGD.) SEDFREY A. ORDOEZ
 Secretary of Justice"
Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic Act 776,
which follows the pronouncements of the Court of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics
Board, and Silangan Airways, Inc. vs. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the Certificate of
Public Convenience and Necessity or Temporary Operating Permit to a prospective domestic air transport operator
who does not possess a legislative franchise to operate as such. Relying on the Court's pronouncement in
Albano vs. Reyes (supra), the Court of Appeals upheld the authority of the Board to issue such authority, even in
the absence of a legislative franchise, which authority is derived from Section 10 of Republic Act 776, as amended
by P.D. 1462.[11]
The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary Operating Permit.
This rule has been established in the case of Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on
June 13, 1968.[12] The Board is expressly authorized by Republic Act 776 to issue a temporary operating permit or
Certificate of Public Convenience and Necessity, and nothing contained in the said law negates the power to issue
said permit before the completion of the applicant's evidence and that of the oppositor thereto on the main petition.
Indeed, the CAB's authority to grant a temporary permit "upon its own initiative" strongly suggests the power to
exercise said authority, even before the presentation of said evidence has begun. Assuming arguendo that a
legislative franchise is prerequisite to the issuance of a permit, the absence of the same does not affect the
jurisdiction of the Board to hear the application, but tolls only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is admittedly a prerogative of the legislature,
since Congress is that branch of government vested with plenary powers of legislation.
"The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of its properly
constituted instrumentalities. The grant, when made, binds the public, and is, directly or indirectly, the act of the
state."[13]
The issue in this petition is whether or not Congress, in enacting Republic Act 776, has delegated the authority
to authorize the operation of domestic air transport services to the respondent Board, such that Congressional
mandate for the approval of such authority is no longer necessary.
Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the
operation of certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing
tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by
the courts.[14] It is generally recognized that a franchise may be derived indirectly from the state through a duly
designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to
agencies other than those of a legislative nature.[15] In pursuance of this, it has been held that privileges conferred
by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant
had been made by an act of the Legislature.[16]
The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate and
control the operation of public services under reasonable rules and regulations, and as a general rule, courts will
not interfere with the exercise of that discretion when it is just and reasonable and founded upon a legal right.[17]
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent
issuances governing the Philippine Ports Authority,[18] proves that the PPA is empowered to undertake by itself the
operation and management of the Manila International Container Terminal, or to authorize its operation and
management by another by contract or other means, at its option. The latter power having been delegated to the
PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manage the MICP
becomes unnecessary.
Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a Certificate
of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport operator, who,
though not possessing a legislative franchise, meets all the other requirements prescribed by the law. Such
requirements were enumerated in Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an
indispensable requirement for an entity to operate as a domestic air transport operator. Although Section 11 of
Article XII recognizes Congress' control over any franchise, certificate or authority to operate a public utility, it does
not mean Congress has exclusive authority to issue the same. Franchises issued by Congress are not required
before each and every public utility may operate.[19] In many instances, Congress has seen it fit to delegate this
function to government agencies, specialized particularly in their respective areas of public service.
A reading of Section 10 of the same reveals the clear intent of Congress to delegate the authority to regulate
the issuance of a license to operate domestic air transport services:
SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall have the
power to regulate the economic aspect of air transportation, and shall have general supervision and regulation of,
the jurisdiction and control over air carriers, general sales agents, cargo sales agents, and air freight forwarders as
well as their property rights, equipment, facilities and franchise, insofar as may be necessary for the purpose of
carrying out the provision of this Act.
In support of the Board's authority as stated above, it is given the following specific powers and duties:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify, cancel,
suspend or revoke in whole or in part upon petition or complaint or upon its own initiative any Temporary Operating
Permit or Certificate of Public Convenience and Necessity: Provided however, That in the case of foreign air
carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of Public Convenience
and Necessity", this, according to petitioner, means that a legislative franchise is an absolute requirement. It cites a
number of authorities supporting the view that a Certificate of Public Convenience and Necessity is issued to a
public service for which a franchise is required by law, as distinguished from a "Certificate of Public Convenience"
which is an authorization issued for the operation of public services for which no franchise, either municipal or
legislative, is required by law.[20]
This submission relies on the premise that the authority to issue a certificate of public convenience and
necessity is a regulatory measure separate and distinct from the authority to grant a franchise for the operation of
the public utility subject of this particular case, which is exclusively lodged by petitioner in Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public convenience which courts and legal writers have
drafted. Some statutes use the terms "convenience and necessity" while others use only the words "public
convenience." The terms "convenience and necessity", if used together in a statute, are usually held not to be
separable, but are construed together. Both words modify each other and must be construed together. The word
'necessity' is so connected, not as an additional requirement but to modify and qualify what might otherwise be
taken as the strict significance of the word necessity. Public convenience and necessity exists when the proposed
facility will meet a reasonable want of the public and supply a need which the existing facilities do not adequately
afford. It does not mean or require an actual physical necessity or an indispensable thing.[21]
"The terms 'convenience' and 'necessity' are to be construed together, although they are not synonymous, and
effect must be given both. The convenience of the public must not be circumscribed by according to the word
'necessity' its strict meaning or an essential requisites."[22]
The use of the word "necessity", in conjunction with "public convenience" in a certificate of authorization to a
public service entity to operate, does not in any way modify the nature of such certification, or the requirements for
the issuance of the same. It is the law which determines the requisites for the issuance of such certification, and not
the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for the operation of domestic transport
services, has delegated to the said body the authority to determine the capability and competence of a prospective
domestic air transport operator to engage in such venture. This is not an instance of transforming the respondent
Board into a mini-legislative body, with unbridled authority to choose who should be given authority to operate
domestic air transport services.
"To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving commission" that
will give the delegate unlimited legislative authority. It must not be a delegation "running riot" and "not canalized
with banks that keep it from overflowing." Otherwise, the delegation is in legal effect an abdication of legislative
authority, a total surrender by the legislature of its prerogatives in favor of the delegate."[23]
Congress, in this instance, has set specific limitations on how such authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:
"SECTION 4. Declaration of policies. In the exercise and performance of its powers and duties under this Act, the
Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider the following, among other things, as
being in the public interest, and in accordance with the public convenience and necessity:
(a) The development and utilization of the air potential of the Philippines;
(b) The encouragement and development of an air transportation system properly adapted to the present and future
of foreign and domestic commerce of the Philippines, of the Postal Service and of the National Defense;
(c) The regulation of air transportation in such manner as to recognize and preserve the inherent advantages of,
assure the highest degree of safety in, and foster sound economic condition in, such transportation, and to improve
the relations between, and coordinate transportation by, air carriers;
(d) The promotion of adequate, economical and efficient service by air carriers at reasonable charges, without
unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices;
(e) Competition between air carriers to the extent necessary to assure the sound development of an air
transportation system properly adapted to the need of the foreign and domestic commerce of the Philippines, of the
Postal Service, and of the National Defense;
(f) To promote safety of flight in air commerce in the Philippines; and,
(g) The encouragement and development of civil aeronautics.
More importantly, the said law has enumerated the requirements to determine the competency of a
prospective operator to engage in the public service of air transportation.
SECTION 12. Citizenship requirement. Except as otherwise provided in the Constitution and existing treaty or
treaties, a permit authorizing a person to engage in domestic air commerce and/or air transportation shall be issued
only to citizens of the Philippines.[24]
SECTION 21. Issuance of permit. The Board shall issue a permit authorizing the whole or any part of the service
covered by the application, if it finds: (1) that the applicant is fit, willing and able to perform such service properly in
conformity with the provisions of this Act and the rules, regulations, and requirements issued thereunder; and (2)
that such service is required by the public convenience and necessity; otherwise the application shall be denied.
Furthermore, the procedure for the processing of the application of a Certificate of Public Convenience and
Necessity had been established to ensure the weeding out of those entities that are not deserving of public
service.[25]
In sum, respondent Board should now be allowed to continue hearing the application of GrandAir for the
issuance of a Certificate of Public Convenience and Necessity, there being no legal obstacle to the exercise of its
jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS the instant
petition for lack of merit. The respondent Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the
application of respondent Grand International Airways, Inc. for the issuance of a Certificate of Public Convenience
and Necessity.
SO ORDERED.

HONTIVEROS-BARAQUEL vs. TOLL REGULATORY BOARD

G.R. No. 181293 February 23, 2015

DECISION
This is an original petition for certiorari and prohibition under Rule 65 of the Rules of Court, with a prayer for the
issuance of a writ of preliminary injunction and/or temporary restraining order, seeking the annulment of the
following:
1. The Amendment to the Supplemental Toll Operation Agreement executed on 18 July 2007 between the
Republic of the Philippines, the Philippine National Construction Corporation, and Citra Metro Manila
Tollways Corporation;
 2. The Memorandum dated 20 July 2007 of the Secretary of Transportation and Communications,
approving the Amendment to the Supplemental Toll Operation Agreement;
3. The Memorandum of Agreement executed on 21 December 2007 between the Philippine National
Construction Corporation, PNCC Skyway Corporation, and Citra Metro Manila Tollways Corporation; and
4. The Toll Operation Certificate issued by the Toll Regulatory Board on 28 December 2007 in favor of
Skyway O & M Corporation.
The annulment of the above is sought for being unconstitutional, contrary to law, and grossly disadvantageous to
the government. Petitioners also seek to prohibit Skyway O & M Corporation from assuming operations and
maintenance responsibilities over the Skyway toll facilities. ANTECEDENT FACTS
The Toll Regulatory Board (TRB) was created on 31 March 1977 by Presidential Decree No. (P.D.) 1112 1 in order
to supervise and regulate, on behalf of the government, the collection of toll fees and the operation of toll facilities
by the private sector.
On the same date, P.D. 11132 was issued granting to the Construction and Development Corporation of the
Philippines (now Philippine National Construction Corporation or PNCC) the right, privilege, and authority to
construct, operate, and maintain toll facilities in the North and South Luzon Toll Expressways for a period of 30
years starting 1 May1977.
TRB and PNCC later entered into a Toll Operation Agreement,3 which prescribed the operating conditions of the
right granted to PNCC under P.D. 1113.
P.D. 1113 was amended by P.D. 1894,4 which granted PNCC the right, privilege, and authority to construct,
maintain, and operate the North Luzon, South Luzon and Metro Manila Expressways, together with the toll facilities
appurtenant thereto. The term of 30 years provided under P. D. 1113 starting from 1 May 1977 remained the same
for the North and the South Luzon Expressways, while the franchise granted for the Metro Manila Expressway
(MME) provided a term of 30 years commencing from the date of completion of the project.
On 22 September 1993, PNCC entered into an agreement5 with PT Citra Lamtoro Gung Persada (CITRA), a limited
liability company organized and established under the laws of the Republic of Indonesia, whereby the latter
committed to provide PNCC with a pre-feasibility study on the proposed MME project. The agreement was
supplemented6 on 14 February 1994 with a related undertaking on the part of CITRA. CITRA was to provide a
preliminary feasibility study on the Metro Manila Skyways (MMS) project, a system of elevated roadway networks
passing through the heart of the Metropolitan Manila area. In order to accelerate the actual implementation of both
the MME and the MMS projects, PNCC and CITRA entered into a second agreement.7 Through that agreement,
CITRA committed to finance and undertake the preparation, updating, and revalidation of previous studies on the
construction, operation, and maintenance of the projects.
As a result of the feasibility and related studies, PNCC and CITRA submitted, through the TRB, a Joint Investment
Proposal (JIP) to the Republic of the Philippines.8 The JIP embodied the implementation schedule for the financing,
design and construction of the MMS in three stages: the South Metro Manila Skyway, the North Metro Manila
Skyway, and the Central Metro Manila Skyway.9
The TRB reviewed, evaluated and approved the JIP, particularly as it related to Stage 1, Phases 1 and 2; and
Stage 2, Phase 1 of the South Metro Manila Skyway.
On 30 August 1995, PNCC and CITRA entered into a Business and Joint Venture Agreement 10 and created the
Citra Metro Manila Tollways Corporation (CMMTC). CMMTC was a joint venture corporation organized under
Philippine laws to serve as a channel through which CITRA shall participate in the construction and development of
the project.
On 27 November 1995, the Republic of the Philippines - through the TRB - as Grantor, CMMTC as Investor, and
PNCC as Operator executed a Supplemental Toll Operation Agreement (STOA) 11 covering Stage 1, Phases 1 and
2; and Stage 2, Phase 1 of the South Metro Manila Skyway. Under the STOA, the design and construction of the
project roads became the primary and exclusive privilege and responsibility of CMMTC. The operation and
maintenance of the project roads became the primary and exclusive privilege and responsibility of the PNCC
Skyway Corporation (PSC), a wholly owned subsidiary of PNCC, which undertook and performed the latter's
obligations under the STOA.
CMMTC completed the design and construction of Stage 1 of the South Metro Manila Skyway, which was operated
and maintained by PSC.12
On 18 July 2007, the Republic of the Philippines, through the TRB, CMMTC, and PNCC executed the assailed
Amendment to the Supplemental Toll Operation Agreement (ASTOA).13 The ASTOA incorporated the
amendments, revisions, and modifications necessary to cover the design and construction of Stage 2 of the South
Metro Manila Skyway. Also under the ASTOA, Skyway 0 & M Corporation (SOMCO) replaced PSC in performing
the operations and maintenance of Stage 1 of the South Metro Manila Skyway.
Pursuant to the authority granted to him under Executive Order No. (E.O.) 49714 dated 24 January 2006,
Department of Transportation and Communications (DOTC) Secretary Leandro Mendoza approved the ASTOA
through the challenged Memorandum dated 20 July 2007.15
On 21 December 2007, PNCC, PSC, and CMMTC entered into the assailed Memorandum of Agreement
(MOA)16providing for the successful and seamless assumption by SOMCO of the operations and maintenance of
Stage 1 of the South Metro Manila Skyway. Under the MOA, PSC received the amount of ₱320 million which was
used for the settlement of its liabilities arising from the consequent retrenchment or separation of its affected
employees.
The TRB issued the challenged Toll Operation Certificate (TOC) 17 to SOM CO on 28 December 2007, authorizing
the latter to operate and maintain Stage 1 of the South Metro Manila Skyway effective 10:00 p.m. on
31December2007.
Meanwhile, on 28 December 2007, petitioner PNCC Traffic Management and Security Department Workers
Organization (PTMSDWO) filed a Notice of Strike against PSC on the ground of unfair labor practice, specifically
union busting.18 The Secretary of Labor and Employment19 assumed jurisdiction over the dispute in an Order dated
31 December 2007 and set the initial hearing of the case on 2 January 2008.20
On 3 January 2008, petitioners PTMSDWO and PNCC Skyway Corporation Employees Union (PSCEU) filed
before the Regional Trial Court of Parañaque City, Branch 258 (RTC), a complaint against respondents TRB,
PNCC, PSC, CMMTC, and SOMCO. The complaint was for injunction and prohibition with a prayer for a writ of
preliminary injunction and/or a temporary restraining order, and sought to prohibit the implementation of the AS
TOA and the MOA, as well as the assumption of the toll operations by SOMCO. 21 Petitioners PSCEU and
PTMSDWO also sought the subsequent nullification of the ASTOA and the MOA for being contrary to law and for
being grossly disadvantageous to the government.22 They later filed an Amended Complaint23 dated 8 January
2008, additionally praying that PSC be allowed to continue the toll operations. With the exception of TRB, all
defendants therein filed their Opposition.
On 23 January 2008, the RTC issued an Order24 denying the prayer for the issuance of a temporary restraining
order and/or writ of preliminary injunction. According to the RTC, petitioners were seeking to enjoin a national
government infrastructure project. Under Republic Act No. (R.A.) 8975, 25 lower courts are prohibited from issuing a
temporary restraining order or preliminary injunction against the government - or any person or entity acting under
the government's direction - to restrain the execution, implementation, or operation of any such contract or project.
Furthermore, the RTC ruled that it could no longer issue a temporary restraining order or preliminary injunction,
considering that the act sought to be restrained had already been consummated.26 The AS TOA, the MOA, and the
assumption of the toll operations by SOMCO took effect at 10:00 p.m. on 31 December 2007, while petitioners
PSCEU and PTMSDWO sought to prohibit their implementation only on 3 January 2008.
In view of its denial of the ancillary prayer, the RTC required defendants to file their respective Answers to the
Amended Complaint.27
On 28 January 2008, petitioners PSCEU and PTMSDWO filed a Notice of Dismissal with Urgent Ex-Parte Motion
for the Issuance of Order Confirming the Dismissal,28 considering that no Answers had yet been filed. On the basis
thereof, the R TC dismissed the case without prejudice on 29 January 2008. 29
On 4 February 2008, petitioners filed the instant Petition30 before this Court. On 13 February 2008, we required
respondents to comment on the same.31
Meanwhile, defendants PNCC32 and PSC33 filed their respective Motions for Partial Reconsideration of the Order of
the R TC dismissing the case without prejudice. Both argued that the RTC should have dismissed the case with
prejudice. They pointed out that petitioners PSCEU and PTMSDWO had acted in bad faith by filing the complaint
before the RTC, despite the pendency of a labor case over which the Secretary of Labor and Employment had
assumed jurisdiction. Defendant CMMTC joined PNCC and PSC in moving for a partial reconsideration of the RTC
Order.34
The RTC denied the Motions for Partial Reconsideration in an Order dated 13 June 2008.35
Before this Court, SOMCO,36 PSC,37 PNCC,38 CMMTC,39 and TRB40 filed their respective Comments on the
Petition.
THE PARTIES' POSITIONS
Petitioners argue that the franchise for toll operations was exclusively vested by P.D. 1113 in PNCC, which
exercised the powers under its franchise through PSC in accordance with the STOA. By agreeing to the
arrangement whereby SOMCO would replace PSC in the toll operations and management, PNCC seriously
breached the terms and conditions of its undertaking under the franchise and effectively abdicated its rights and
privileges in favor of SOMCO.
Furthermore, the TOC granted to SOMCO was highly irregular and contrary to law, because 1) it did not indicate
the conditions that shall be imposed on SOMCO as provided under P.D. 1112; 41 2) none of the requirements on
public bidding, negotiations, or even publication was complied with before the issuance of the TOC to SOMCO; 3)
applying the stricter "grandfather rule," SOMCO does not qualify as a facility operator as defined under R.A.
6957,42 as amended by R.A. 7718;43 and 4) there were no public notices and hearings conducted wherein all
legitimate issues and concerns about the transfer of the toll operations would have been properly ventilated.
Petitioners also claim that the approval by the DOTC Secretary of the AS TOA could not take the place of the
presidential approval required under P.D. 111344 and P.D. 189445 concerning the franchise granted to PNCC.
Finally, petitioners claim that the assumption of the toll operations by SOM CO was grossly disadvantageous to the
government, because 1) for a measly capital investment of ₱2.5 million, SOMCO stands to earn ₱400 million in
gross revenues based on official and historical records; 2) with its measly capital, SOMCO would not be able to
cover the direct overhead for personal services in the amount of ₱226 million as borne out by Commission on Audit
reports; 3) the net revenue from toll operations would go to private shareholders of SOMCO, whereas all earnings
of PSC when it was still in charge of the toll operations went to PNCC - the mother company whose earnings, as an
"acquired-asset corporation," formed part of the public treasury; 4) the new arrangement would result in the poor
delivery of toll services by SOMCO, which had no proven track record; 5) PSC received only ₱320 million as
settlement for the transfer of toll operations to SOMCO.
All respondents counter that petitioners do not have the requisite legal standing to file the petition. According to
respondents, petitioner Hontiveros-Baraquel filed the instant petition as a legislator in her capacity as party-list
representative of Akbayan. As such, she was only allowed to sue to question the validity of any official action when
it infringed on her prerogative as a legislator.46 Presently, she has cited no such prerogative, power, or privilege that
is adversely affected by the assailed acts.47
While suing as citizens, the individual petitioners have not shown any personal or substantial interest in the case
indicating that they sustained or will sustain direct injury as a result of the implementation of the assailed
acts.48 The maintenance of the suit by petitioners as taxpayers has no merit either because the assailed acts do not
involve the disbursement of public funds.49 Finally, the bringing of the suit by petitioners as people's organizations
does not automatically confer legal standing, especially since petitioner-organizations do not even allege that they
represent their members,50 nor do they cite any particular constitutional provision that has been violated or
disregarded by the assailed acts.51 In fact, the suit raises only issues of contract law, and none of the petitioners is
a party or is privy to the assailed agreements and issuances.52
Respondents also argue that petitioners violate the hierarchy of courts. In particular, it is alleged that while lower
courts are prohibited from issuing temporary restraining orders or preliminary injunctions against national
government projects under R.A. 8975, the law does not preclude them from assuming jurisdiction over complaints
that seek the nullification of a national government project as ultimate relief. 53
As a final procedural challenge to the petition, respondents aver that petitioners are guilty of forum shopping. When
petitioners filed the instant petition, the case before the R TC seeking similar reliefs was still pending, as
respondents PNCC, PSC and CMMTC had moved for the partial reconsideration of the RTC's Order of dismissal
within the reglementary period.54 Furthermore, the instant case and the one before the RTC were filed while
petitioners' labor grievances seeking similar reliefs were also being heard before the Department of Labor and
Employment.55
On the merits of the arguments in the petition, respondents argue that nothing in the ASTOA, the approval thereof
by the DOTC Secretary, the MOA, or the TOC was violative of the Constitution. It is argued that the authority to
operate a public utility can be granted by administrative agencies when authorized by law. 56 Under P.D. 1112, the
TRB is empowered to grant authority and enter into contracts for the construction, operation, and maintenance of a
toll facility,57 such as the ASTOA in this case. Also, the ASTOA was an amendment, not to the legislative franchise
of PNCC, but to the STOA previously executed between the Republic of the Philippines through the TRB, PNCC,
and CMMTC.58 In fact, PNCC's franchise was never sold, transferred, or otherwise assigned to SOMCO 59 in the
same way that PSC's previous assumption of the operation and maintenance of the South Metro Manila Skyway
did not amount to a sale, transfer or assignment of PNCC's franchise. 60
There can be no valid objection to the approval of the ASTOA by the DOTC Secretary, because he was authorized
by the President to do so by virtue of E.O. 497.61 Also, the phrase "subject to the approval of the President of the
Philippines" in P.D. 1112 and 1113 does not in any way mean that the presidential approval must be obtained prior
to the execution of a contract, or that the approval be made personally by the President. 62 The presidential approval
may be obtained under the doctrine of qualified political agency. 63
Respondents argue that there is no merit in the claim that the TOC granted to SOMCO was highly irregular and
contrary to law. First, the TOC clearly states that the toll operation and maintenance by SOMCO shall be regulated
by the Republic of the Philippines in accordance with P.D. 1112, the STOA, the toll operations and maintenance
rules and regulations, and lawful orders, instructions, and conditions that may be imposed from time to
time.64Second, there is no need to comply with the public bidding and negotiation requirements, because the South
Metro Manila Skyway is an ongoing project, not a new one.65 Furthermore, the STOA, which was the basis for the
ASTOA, was concluded way before the effectivity of R.A. 918466 in 2003.67
Third, SOMCO is a Filipino corporation with substantial 72% Filipino ownership.68 Fourth, the law requires prior
notice and hearing only in an administrative body's exercise of quasi-judicial functions.69 In this case, the transfer of
the toll operations and maintenance to SOM CO was a contractual arrangement entered into in accordance with
law.70
Finally, the assumption of the toll operation and maintenance by SOMCO is not disadvantageous to the
government. Petitioners belittle the ₱2.5 million capitalization of SOMCO, considering that PSC's capitalization at
the time it was incorporated was merely ₱500,000.71
Respondents claim that under the ASTOA, PNCC shall get a direct share in the toll revenues without any corollary
obligation, unlike the arrangement in the STOA whereby PNCC's 10% share in the toll revenues was intended
primarily for the toll operation and maintenance by PSC.72
Finally, respondents assert that there is no reason to fear that the assumption by SOMCO would result in poor
delivery of toll services. CITRA and the other shareholders of SOMCO are entities with experience and proven
track record in toll operations.73 Also, SOM CO hired or absorbed more than 300 PSC employees,74 who brought
with them their work expertise and experience.
ISSUES
The instant case shall be resolved on the basis of the following issues:
Procedural:
I. Whether petitioners have standing;
II. Whether petitioners are guilty of forum-shopping;
Substantive:
III. Whether the TRB has the power to grant authority to operate a toll facility;
IV. Whether the TOC issued to SOMCO was valid;
V. Whether the approval of the ASTOA by the DOTC Secretary was valid; and
VI. Whether the assumption of toll operations by SOMCO is disadvantageous to the government.
OUR RULING
I
Not all petitioners have personality to sue.
Standing is a constitutional law concept allowing suits to be brought not necessarily by parties personally injured by
the operation of a law or official action, but by concerned citizens, taxpayers, or voters who sue in the public
interest.75 Determining the standing of concerned citizens, taxpayers, or voters requires a partial consideration of
the substantive merit of the constitutional question,76 or at least a preliminary estimate thereof.77
In this case, petitioners raise the power of Congress to grant franchises as a constitutional question. They allege
that the execution of the ASTOA and the MOA, the approval of the AS TOA by the DOTC Secretary and the
issuance of the TOC infringed on the constitutional power of Congress, which has the sole authority to grant
franchises for the operation of public utilities. This Court has had a few occasions to rule that a franchise from
Congress is not required before each and every public utility may operate. 78 Unless there is a law that specifically
requires a franchise for the operation of a public utility, particular agencies in the executive branch may issue
authorizations and licenses for the operation of certain classes of public utilities. 79 In the instant case, there is no
law that states that a legislative franchise is necessary for the operation of toll facilities.
In PAL v. Civil Aeronautics Board,80 this Court enunciated:
Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation
of certain public utilities. With the growing complexity of modem life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing
tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by
the courts. It is generally recognized that a franchise may be derived indirectly from the state through a duly
designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to
agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by
grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had
been made by an act of the Legislature.81
It is thus clear that Congress does not have the sole authority to grant franchises for the operation of public utilities.
Considering the foregoing, we find that the petition raises no issue of constitutional import. More particularly, no
legislative prerogative, power, or privilege has been impaired. Hence, legislators have no standing to file the instant
petition, for they are only allowed to sue to question the validity of any official action when it infringes on their
prerogatives as members of Congress.82 Standing is accorded to them only if there is an unmistakable showing that
the challenged official act affects or impairs their rights and prerogatives as legislators. 83
In line with our ruling in Kilosbayan, Inc. v. Morato,84 the rule concerning a real party in interest - which is applicable
to private litigation – rather than the liberal rule on standing, should be applied to petitioners.
A real party in interest is one who stands to be benefited or injured by the judgment in the suit, or the party entitled
to the avails of the suit.85 One's interest must be personal and not one based on a desire to vindicate the
constitutional right of some third and unrelated party. 86 The purposes of the rule are to prevent the prosecution of
actions by persons without any right or title to or interest in the case; to require that the actual party entitled to legal
relief be the one to prosecute the action; to avoid a multiplicity of suits; and to discourage litigation and keep it
within certain bounds, pursuant to sound public policy. 87
At bottom, what is being questioned in the petition is the relinquishment by PSC of the toll operations in favor of
SOMCO, effectively leading to the cessation of the former' s business. In this case, we find that among petitioners,
the only real parties in interest are the labor unions PSCEU and PTMSDWO.
PSCEU and PTMSDWO filed the petition not as a representative suit on behalf of their members who are rank-and-
file employees of PSC, but as people's organizations "invested with a public duty to defend the rule of
law."88PSCEU and PTMSDWO cite Kilosbayan v. Ermita89 as authority to support their standing to file the instant
suit.
It is well to point out that the Court, in Ermita, accorded standing to people's organizations to file the suit, because
the matter involved therein was the qualification of a person to be appointed as a member of this Court -"an issue of
utmost and far-reaching constitutional importance."90 As discussed, the instant petition raises no genuine
constitutional issues.
Nevertheless, for a different reason, we accord standing to PSCEU and PTMSDWO to file the instant suit. With the
transfer of toll operations to SOMCO and the resulting cessation of PSC's business comes the retrenchment and
separation of all its employees. The existence of petitioner labor unions would terminate with the dissolution of its
employer and the separation of its members. This is why the petition also prays that this Court issue an order "that
would smoothly preserve the toll operations services of respondent PNCC and/or respondent PSC under its
legislative franchise."91
We have recognized that the right of self-preservation is inherent in every labor union or any organization for that
matter.92 Thus, PSCEU and PTMSDWO, as real parties in interest, have the personality to question the assumption
of the toll operations by SOMCO.
II
PSCEU and PTMSDWO are not guilty of forum-shopping.
Forum shopping refers to the act of availing of several remedies in different courts and/or administrative agencies,
either simultaneously or successively, when these remedies are substantially founded on the same material facts
and circumstances and raise basically the same issues either pending in or already resolved by some other court or
administrative agency.93 What is pivotal in determining whether forum shopping exists is the vexation caused to the
courts and litigants and the possibility of conflicting decisions being rendered by different courts and/or
administrative agencies upon the same issues.94
The elements of forum shopping are as follows: a) identity of parties or at least such parties that represent the
same interests in both actions; b) identity of rights asserted and the relief prayed for, the relief founded on the same
facts; and c) identity of the two preceding particulars, such that any judgment rendered in one action will amount to
res judicata in the other.95 Respondents argue that petitioners PSCEU and PTMSDWO committed forum shopping
by filing the complaint for injunction and prohibition before the RTC during the pendency of NCMB-NCR-NS-12-
188-07 entitled In Re: Labor Dispute at PNCC Skyway Corporation. It was a case they also filed, over which the
Secretary of Labor and Employment has assumed jurisdiction.
The case involves a Notice of Strike filed against PSC on the ground of unfair labor practice. While the specific act
in question is not specified, the prohibited acts constituting unfair labor practice 96 essentially relate to violations
concerning the workers' right to self-organization.97 When compared with the complaint filed with the RTC for
injunction and prohibition seeking to prohibit the implementation of the ASTOA and the MOA, as well as the
assumption of the toll operations by SOM CO for being unconstitutional, contrary to law and disadvantageous to the
government, it is easily discernible that there is no identity of rights asserted and relief prayed for. These cases are
distinct and dissimilar in their nature and character.
For the sake of argument, let us assume that, in order to hurt the unions, PSC feigned a cessation of business that
led to the retrenchment and separation of all employees. That is an unfair labor practice. In that complaint, the
unions cannot be expected to ask for, or the Secretary of Labor and Employment to grant, the annulment of the
ASTOA and the MOA and the continuation of toll operations by PSC. The Secretary would only focus on the legality
of the retrenchment and separation, and on the presence or absence of bad faith in PSC's cessation of business.
On the other hand, the complaint before the RTC would require it to focus on the legality of the ASTOA, the MOA
and the transfer of toll operations. Ultimately, even if the Secretary of Labor and Employment makes a finding of
unfair labor practice, this determination would not amount to res judicata as regards the case before the RTC.
We also reject the claim of respondents that petitioners PSCEU and PTMSDWO committed forum shopping by
filing the instant petition before this Court while the motion for partial reconsideration of the RTC's Order of
dismissal without prejudice was still pending. Section 1, Rule 17 of the Rules of Court states:
SECTION 1. Dismissal upon notice by plaintiff. - A complaint may be dismissed by the plaintiff by filing a notice of
dismissal at any time before service of the answer or of a motion for summary judgment. Upon such notice being
filed, the court shall issue an order confirming the dismissal. Unless otherwise stated in the notice, the dismissal is
without prejudice, except that a notice operates as an adjudication upon the merits when filed by a plaintiff who has
once dismissed in a competent court an action based on or including the same claim.
In this case, petitioners PSCEU and PTMSDWO had filed a notice of dismissal of the complaint before the RTC on
28 January 2008, before respondents filed their Answers. The following day, the RTC issued an order confirming
the dismissal. Under the above-cited rule, this confirmation is the only qualification imposed on the right of a party
to dismiss the action before the adverse party files an answer.98 In this case, the dismissal of the action therefore
became effective upon that confirmation by the RTC despite the subsequent filing of the motions for partial
reconsideration.
Thus, when the instant petition was filed on 4 February 2008, the complaint before the RTC was no longer pending.
The complaint was dismissed without prejudice by virtue of the notice of dismissal filed by petitioners PSCEU and
PTMSDWO. Consequently, there was not even any need for petitioners to mention the prior filing and dismissal of
the complaint in the certificate of non-forum shopping in the instant petition,99 but they did so anyway.100
Parenthetically, in their motions for partial reconsideration, respondents PNCC and PSC insisted that the dismissal
should have been with prejudice, because petitioners allegedly acted in bad faith in filing the notice of dismissal,
were guilty of forum shopping, and did not notify respondents of their intention to file a notice of dismissal. With
regard to the first and the third allegation, petitioners may ask for dismissal at any time before the filing of the
answer as a matter of right, even if the notice cites "the most ridiculous of grounds for dismissal." 101 As to the
second, we have already ruled that there was no forum shopping as regards the successive filings of the labor case
and the complaint before the RTC.
II
TRB has the power to grant authority to operate a toll facility.
This matter has already been settled by the Court in Francisco, Jr. v. TRB,102 which ruled thus:
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section 4 of P.D. 1894 have invested the
TRB with sufficient power to grant a qualified person or entity with authority to construct, maintain, and operate a
toll facility and to issue the corresponding toll operating permit or TOC.
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply provide the power to grant authority to
operate toll facilities:
Section 3. Powers and Duties of the Board. - The Board shall have in addition to its general powers of
administration the following powers and duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of the Republic of the
Philippines with persons, natural or juridical, for the construction, operation and maintenance of toll facilities such
as but not limited to national highways, roads, bridges, and public thoroughfares. Said contract shall be open to
citizens of the Philippines and/or to corporations or associations qualified under the Constitution and authorized by
law to engage in toll operations;
xxxx
(e) To grant authority to operate a toll facility and to issue therefore the necessary "Toll Operation Certificate"
subject to such conditions as shall be imposed by the Board including inter alia the following:
(1) That the Operator shall desist from collecting toll upon the expiration of the Toll Operation Certificate.
(2) That the entire facility operated as a toll system including all operation and maintenance equipment
directly related thereto shall be turned over to the government immediately upon the expiration of the Toll
Operation Certificate.
(3) That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the rights or privileges
acquired under the Toll Operation Certificate to any person, firm, company, corporation or other
commercial or legal entity, nor merge with any other company or corporation organized for the same
purpose, without the prior approval of the President of the Philippines. In the event of any valid transfer of
the Toll Operation Certificate, the Transferee shall be subject to all the conditions, terms, restrictions and
limitations of this Decree as fully and completely and to the same extent as if the Toll Operation Certificate
has been granted to the same person, firm, company, corporation or other commercial or legal entity.
(4) That in time of war, rebellion, public peril, emergency, calamity, disaster or disturbance of peace and
order, the President of the Philippines may cause the total or partial closing of the toll facility or order to
take over thereof by the Government without prejudice to the payment of just compensation.
(5) That no guarantee, Certificate of Indebtedness, collateral, securities, or bonds shall be issued by any
government agency or government-owned or controlled corporation on any financing program of the toll
operator in connection with his undertaking under the Toll Operation Certificate.
(6) The Toll Operation Certificate may be amended, modified or revoked whenever the public interest so
requires.
(a) The Board shall promulgate rules and regulations governing the procedures for the grant of Toll
Certificates. The rights and privileges of a grantee under a Toll Operation Certificate shall be
defined by the Board.
(b) To issue rules and regulations to carry out the purposes of this Decree.
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and supervision over the GRANTEE with
respect to the Expressways, the toll facilities necessarily appurtenant thereto and, subject to the provisions of
Section 8 and 9 hereof, the toll that the GRANTEE will charge the users thereof.
By explicit provision of law, the TRB was given the power to grant administrative franchise for toll facility
projects.103(Emphases supplied)
We cannot abide by the contention of petitioners that the franchise for toll operations was exclusively vested in
PNCC, which effectively breached its franchise when it transferred the toll operations to SOMCO. First, there is
nothing in P.D. 1113 or P.D. 1894 that states that the franchise granted to PNCC is to the exclusion of all others.
Second, if we were to go by the theory of petitioners, it is only the operation and maintenance of the toll facilities
that is vested with PNCC. This interpretation is contrary to the wording of P.D. 1113 and P.D. 1894 g ranting PNCC
the right, privilege and authority to construct, operate and maintain the North Luzon, South Luzon and Metro Manila
Expressways and their toll facilities.
It appears that petitioners have confused the franchise granted under P.D. 1113 and P.D. 1894 with particular
provisions in the STOA. To clarify, the operation and maintenance of the project roads were the primary and
exclusive privilege and responsibility of PNCC through PSC under the STOA. On the other hand, the design and
construction of the project roads were the primary and exclusive privilege and responsibility of CMMTC. However,
with the execution of the AS TOA, the parties agreed that SOM CO shall replace PSC in undertaking the operations
and maintenance of the project roads. Thus, the "exclusivity clause" was a matter of agreement between the
parties, which amended it in a later contract; it was not a matter provided under the law.
Third, aside from having been granted the power to grant administrative franchises for toll facility projects, TRB is
also empowered to modify, amend, and impose additional conditions on the franchise of PNCC in an appropriate
contract, particularly when public interest calls for it. This is provided under Section 3 of P.D. 1113 and Section 6 of
P.D. 1894, to wit:
SECTION 3. This franchise is granted subject to such conditions as may be imposed by the [Toll Regulatory] Board
in an appropriate contract to be executed for this purpose, and with the understanding and upon the condition that it
shall be subject to amendment, alteration or repeal when public interest so requires.
xxx
SECTION 6. This franchise is granted subject to such conditions, consistent with the provisions of this Decree, as
may be imposed by the Toll Regulatory Board in the Toll Operation Agreement and such other modifications or
amendments that may be made thereto, and with the understanding and upon the condition that it shall be subject
to amendment or alteration when public interest so dictates.
Section 6 of P.D. 1894 specifically mentions the Toll Operation Agreement. The STOA was one such modification
or amendment of the franchise of PNCC. So was the ASTOA, which further modified the franchise. PNCC cannot
be said to have breached its franchise when it transferred the toll operations to SOMCO. PNCC remained the
franchise holder for the construction, operation, and maintenance of the project roads; it only opted to partner with
investors in the exercise of its franchise leading to the organization of companies such as PSC and SOMCO.
Again, considering that PNCC was granted the right, privilege, and authority to construct, operate, and maintain the
North Luzon, South Luzon, and Metro Manila Expressways and their toll facilities, we have not heard petitioners
decrying the "breach" by PNCC of its franchise when it agreed to make CMMTC responsible for the design and
construction of the project roads under the STOA.
IV
The TOC issued to SOMCO was not irregular.
Petitioners argue that the conditions provided under Section 3(e) of P.D. 1112104 were not imposed on SOMCO,
because these do not appear on the face of the TOC. Petitioners are mistaken.
The TOC, as a grant of authority from the government, is subject to the latter's control insofar as the grant affects or
concerns the public.105 Like all other franchises or licenses issued by the government, the TOC is issued subject to
terms, conditions, and limitations under existing laws and agreements. This rule especially holds true in this
instance since the TRB has the power to issue "the necessary 'Toll Operation Certificate' subject to such conditions
as shall be imposed by the Board including inter alia" those specified under Section 3(e) of P.D. 1112. Thus,
impliedly written into every TOC are the conditions prescribed therein.
In any case, part of the TOC issued to SOMCO reads:
Pursuant to Section 3(e) of Presidential Decree No. 1112 or the Toll Operation Decree, Skyway O & M Corporation
is hereby given authority to operate and maintain Stage 1 of the South Metro Manila Skyway effective as of 10:00
p.m. of 31 December 2007.
This authorization is issued upon the clear understanding that the operation and maintenance of Stage 1 of the
South Metro Manila Skyway as a toll facility and the collection of toll fees shall be closely supervised and regulated
by the Grantor, by and through the Board of Directors, in accordance with the terms and conditions set forth in the
STOA, as amended, the rules and regulations duly promulgated by the Grantor for toll road operations and
maintenance, as well as the lawful orders, instructions and conditions which the Grantor, through the TRB, may
impose from time to time in view of the public nature of the facility.
As regards the allegation that none of the requirements for public bidding was observed before the TOC was issued
to SOMCO, this matter was also squarely answered by the Court in Francisco, Jr. v. TRB, 106 to wit:
Where, in the instant case, a franchisee undertakes the tollway projects of construction, rehabilitation and
expansion of the tollways under its franchise, there is no need for a public bidding. In pursuing the projects with the
vast resource requirements, the franchisee can partner with other investors, which it may choose in the exercise of
its management prerogatives. In this case, no public bidding is required upon the franchisee in choosing its
partners as such process was done in the exercise of management prerogatives and in pursuit of its right of
delectus personae. Thus, the subject tollway projects were undertaken by companies, which are the product of the
joint ventures between PNCC and its chosen partners.107
Under the STOA in this case, PNCC partnered with CMMTC in Stages 1 and 2 of the South Metro Manila Skyway.
The STOA gave birth to PSC, which was put in charge of the operation and maintenance of the project roads. The
ASTOA had to be executed for Stage 2 to accommodate changes and modifications in the original design. The
ASTOA then brought forth the incorporation of SOMCO to replace PSC in the operations and maintenance of Stage
1 of the South Metro Manila Skyway. Clearly, no public bidding was necessary because PNCC, the franchisee,
merely exercised its management prerogative when it decided to undertake the construction, operation, and
maintenance of the project roads through companies which are products of joint ventures with chosen partners.
Petitioners also insist that SOMCO is not qualified to operate a toll facility, because it does not meet the nationality
requirement for a corporation when scrutinized under the "grandfather rule." Other than advancing this argument,
however, petitioners have not shown how SOMCO fails to meet the nationality requirement for a public utility
operator. Petitioners only aver in their petition that 40% of SOMCO is owned by CMMTC, a foreign company, while
the rest is owned by the following: a) Toll Road Operation and Maintenance Venture Corporation (TROMVC),
almost 40% of which is owned by a Singaporean company; b) Asset values Holding Company, Inc. (AHCI), of
which almost 40% is Dutch-owned; and c) Metro Strategic Infrastructure Holdings, Inc. (MSIHI), 40% of which is
owned by Metro Pacific Corporation, whose ownership or nationality was not specified. 108
Section 11, Article XII of the Constitution provides that "[n]o franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by
such citizens x x x." Clearly, under the Constitution, a corporation at least 60% of whose capital is owned by
Filipinos is of Philippine nationality. Considering this constitutional provision, petitioners' silence on the ownership of
the remaining 60% of the corporations cited is very telling.
In order to rebut petitioners' allegations, respondents readily present matrices showing the itemization of
percentage ownerships of the subscribed capital stock of SOMCO, as well as that of TROMVC, AHCI, and MSIHI.
Respondents attempt to show that all these corporations are of Philippine nationality, with 60% of their capital stock
owned by Filipino citizens. We need not reproduce the itemization here. Suffice it to say that in their Consolidated
Reply,109petitioners did not refute the unanimous claim of respondents. It is axiomatic that one who alleges a fact
has the burden of proving it. On this matter, we find that petitioners have failed to prove their allegation that
SOMCO is not qualified to operate a toll facility for failure to meet the nationality requirement under the
Constitution.
Finally, no public notices and hearings were necessary prior to the issuance of the TOC to SOMCO. For the same
reason that a public bidding is not necessary, PNCC cannot be required to call for public hearings concerning
matters within its prerogative. At any rate, we have studied P.D. 1112 and the Implementing Rules and Regulations
Authorizing the Establishment of Toll Facilities and found no provision requiring the issuance of public notices and
the conduct of public hearings prior to the issuance of a TOC.
V
Approval of the AS TOA by the DOTC Secretary was approval by the President.
The doctrine of qualified political agency declares that, save in matters on which the Constitution or the
circumstances require the President to act personally, executive and administrative functions are exercised through
executive departments headed by cabinet secretaries, whose acts are presumptively the acts of the President
unless disapproved by the latter.110 As explained in Villena v. Executive Secretary, 111 this doctrine is rooted in the
Constitution:
x x x With reference to the Executive Department of the government, there is one purpose which is crystal-clear
and is readily visible without the projection of judicial searchlight, and that is, the establishment of a single, not
plural, Executive. The first section of Article VII of the Constitution, dealing with the Executive Department, begins
with the enunciation of the principle that "The executive power shall be vested in a President of the Philippines."
This means that the President of the Philippines is the Executive of the Government of the Philippines, and no
other. The heads of the executive departments occupy political positions and hold office in an advisory capacity,
and, in the language of Thomas Jefferson, "should be of the President's bosom confidence," and, in the language
of Attorney-General Cushing, "are subject to the direction of the President." Without minimizing the importance of
the heads of the various departments, their personality is in reality but the projection of that of the President. Stated
otherwise, and as forcibly characterized by Chief Justice Taft of the Supreme Court of the United States, "each
head of a department is, and must be, the President's alter ego in the matters of that department where the
President is required by law to exercise authority." Secretaries of departments, of course, exercise certain powers
under the law but the law cannot impair or in any way affect the constitutional power of control and direction of the
President. As a matter of executive policy, they may be granted departmental autonomy as to certain matters but
this is by mere concession of the executive, in the absence of valid legislation in the particular field. If the President,
then, is the authority in the Executive Department, he assumes the corresponding responsibility. The head of a
department is a man of his confidence; he controls and directs his acts; he appoints him and can remove him at
pleasure; he is the executive, not any of his secretaries.112 x x x (Citations omitted)
Applying the doctrine of qualified political agency, we have ruled that the Secretary of Environment and Natural
Resources can validly order the transfer of a regional office by virtue of the power of the President to reorganize the
national government.113 In Constantino v. Cuisia,114 the Court upheld the authority of the Secretary of Finance to
execute debt-relief contracts. The authority emanates from the power of the President to contract foreign loans
under Section 20, Article VII of the Constitution. In Angeles v. Gaite, 115 the Court ruled that there can be no issue
with regard to the President's act of limiting his power to review decisions and orders of the Secretary of Justice,
especially since the decision or order was issued by the secretary, the President's "own alter ego." 116
There can be no question that the act of the secretary is the act of the President, unless repudiated by the latter. In
this case, approval of the ASTOA by the DOTC Secretary had the same effect as approval by the President. The
same would be true even without the issuance of E.O. 497, in which the President, on 24 January 2006, specifically
delegated to the DOTC Secretary the authority to approve contracts entered into by the TRB.
Petitioners are unimpressed. They cite Section 8 of P.D. 1113 and Section 13 of P.D. 1894 as follows:
SECTION 8. The GRANTEE shall not lease, transfer, grant the usufruct of, sell or assign this franchise nor the
rights or privileges acquired hereby, to any person, firm, company, corporation or other commercial or legal entity,
nor merge with any other company or corporation without the prior approval of the President of the Philippines. In
the event that this franchise is sold, transferred or assigned, the transferee shall be subject to all the conditions,
terms, restrictions and limitations of this Decree as fully and completely and to the same extents as if the franchise
has been granted to the same person, firm, company, corporation or other commercial or legal entity. (Emphasis
supplied)
SECTION 13. The GRANTEE shall not lease, transfer, grant the usufruct of, sell or assign this franchise nor the
rights or privileges required hereby, to any person, firm, company, corporation or other legal entity, nor merge with
any other company or corporation without the prior approval of the President of the Philippines. In the event that
this franchise is sold, transferred or assigned, the transferee shall be subject to all the conditions, terms, restrictions
and limitations of this Decree as fully and completely and to the same extent as if the franchise has been granted to
the said person, firm, company, corporation or other legal entity. (Emphasis supplied) Petitioners insist that based
on the above provisions, it is the President who should give personal approval considering that the power to grant
franchises was exclusively vested in Congress. Hence, to allow the DOTC Secretary to exercise the power of
approval would supposedly dilute that legislative prerogative.
The argument of petitioners is founded on the assumption that PNCC in some way leased, transferred, granted the
usufruct of, sold, or assigned to SOMCO its franchise or the rights or privileges PNCC had acquired by it. Here lies
the error in petitioners' stand. First, as discussed above, the power to grant franchises or issue authorizations for
the operation of a public utility is not exclusively exercised by Congress. Second, except where the situation falls
within that special class that demands the exclusive and personal exercise by the President of constitutionally
vested power,117 the President acts through alter egos whose acts are as if the Chief Executive's own.
Third, no lease, transfer, grant of usufruct, sale, or assignment of franchise by PNCC or its merger with another
company ever took place.
The creation of the TRB and the grant of franchise to PNCC were made in the light of the recognition on the part of
the government that the private sector had to be involved as an alternative source of financing for the pursuance of
national infrastructure projects. As the franchise holder for the construction, maintenance and operation of
infrastructure toll facilities, PNCC was equipped with the right and privilege, but not necessarily the means, to
undertake the project. This is where joint ventures with private investors become necessary.
A joint venture is an association of companies jointly undertaking a commercial endeavor, with all of them
contributing assets and sharing risks, profits, and losses. 118 It is hardly distinguishable from a partnership
considering that their elements are similar and, thus, generally governed by the law on partnership. 119
In joint ventures with investor companies, PNCC contributes the franchise it possesses, while the partner
contributes the financing - both necessary for the construction, maintenance, and operation of the toll facilities.
PNCC did not thereby lease, transfer, grant the usufruct of, sell, or assign its franchise or other rights or privileges.
This remains true even though the partnership acquires a distinct and separate personality from that of the joint
venturers or leads to the formation of a new company that is the product of such joint venture, such as PSC and
SOMCO in this case.
Hence, when we say that the approval by the DOTC Secretary in this case was approval by the President, it was
not in connection with the franchise of PNCC, as required under Section 8 of P.D. 1113 and Section 13 of P.D.
1894. Rather, the approval was in connection with the powers of the TRB to enter into contracts on behalf of the
government as provided under Section 3(a) of P.D. 1112, which states:
SECTION 3. Powers and Duties of the Board. - The Board shall have in addition to its general powers of
administration the following powers and duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of the Republic of the
Philippines with persons, natural or juridical, for the construction, operation and maintenance of toll facilities such
as but not limited to national highways, roads, bridges, and public thoroughfares. Said contract shall be open to
citizens of the Philippines and/or to corporations or associations qualified under the Constitution and authorized by
law to engage in toll operations; (Emphasis supplied)
VI
Petitioners have not shown that the transfer of toll operations to SOM CO was grossly disadvantageous to the
government.
In support of their contention that the transfer of toll operations from PSC to SOMCO was grossly disadvantageous
to the government, petitioners belittle the initial capital investment, private ownership, and track record of SOMCO.
When one uses the term "grossly disadvantageous to the government," the allegations in support thereof must
reflect the meaning accorded to the phrase. "Gross" means glaring, reprehensible, culpable, flagrant, and
shocking.120 It requires that the mere allegation shows that the disadvantage on the part of the government is
unmistakable, obvious, and certain.
In this case, we find that the allegations of petitioners are nothing more than speculations, apprehensions, and
suppositions. They speculate that with its "measly" capital investment, SOMCO would not be able to cover the
overhead expenses for personal services alone. They fear that the revenue from toll operations would go to "private
pockets" in exchange for a small settlement amount to be given to PSC. Given that SOMCO has no proven track
record, petitioners deduce that its assumption of the toll operations would lead to poor delivery of toll services to the
public.
The aim in the establishment of toll facilities is to draw from private resources the financing of government
infrastructure projects. Naturally, these private investors would want to receive reasonable return on their
investments. Thus, the collection of toll fees for the use of public improvements has been authorized, subject to
supervision and regulation by the national government.121 As regards the ₱320 million settlement given to PSC, the
amount was to be used principally for the payment of its liabilities of PSC arising from the retrenchment of its
employees. We note that under the MOA, the residual assets of PSC shall still be offered for sale to CMMTC,
subject to valuation.122 Thus, it would be inaccurate to say that PSC would receive only ₱320 million for the entire
arrangement.
It is quite understandable that SOMCO does not yet have a proven track record in toll operations, considering that it
was only the ASTOA and the MOA that gave birth to it. We are not prepared to rule that this lack of track record
would result in poor delivery of toll services, especially because most of the former employees of PSC have been
rehired by SOMCO, an allegation of respondents that was never refuted by petitioners. Neither are we prepared to
take the amount of SOMCO's initial capital investment against it, as it is considerably higher than ₱500,000, the
authorized capital stock of PSC as of 2002.123
A FINAL NOTE
R.A. 8975 prohibits lower courts from issuing any temporary restraining order, preliminary injunction, or preliminary
mandatory injunction against the government - or any of its subdivisions, officials or any person or entity, whether
public or private, acting under the government's direction - to restrain, prohibit or compel acts related to the
implementation and completion of government infrastructure projects.
The rationale for the law is easily discernible. Injunctions and restraining orders tend to derail the expeditious and
efficient implementation and completion of government infrastructure projects; increase construction, maintenance
and repair costs; and delay the enjoyment of the social and economic benefits therefrom. Thus, unless the matter is
of extreme urgency involving a constitutional issue, judges of lower courts who shall issue injunctive writs or
restraining orders in violation of the law shall be administratively liable.
The law is clear that what is prohibited is merely the issuance of provisional orders enjoining the implementation of
a national government project. R.A. 8975 does not bar lower courts from assuming jurisdiction over complaints that
seek the nullification or implementation of a national government infrastructure project as ultimate relief. 124
There is no question that the ultimate prayer in the instant case is the nullification of a national government project
considering that the ASTOA involved the design and construction of Stage 2 of the South Metro Manila Skyway, as
well as the operation and maintenance of Stage 1 thereof. The prayer is grounded on the contract's alleged
unconstitutionality, violation of the law, and gross disadvantage to the government. Such principal action and relief
were within the jurisdiction of the RTC, which acted correctly when it ordered respondents to file their respective
answers to the complaint, even while it denied the prayer for the issuance of a writ of preliminary injunction and/or
temporary restraining order in observance of R.A. 8975.
It was therefore error on the part of petitioners to come directly before this Court for the sole reason that the lower
courts will not be able to grant the prayer for the issuance of a writ of preliminary injunction and/or temporary
restraining order to enjoin the assumption of toll operations by SOMCO. The error even takes on a whole new
meaning, because SOMCO assumed responsibility for the operations and maintenance of the South Metro Manila
Skyway at 10:00 p.m. on 31 December 2007. On the other hand, the complaint before the RTC seeking to enjoin
the assumption by SOMCO was filed only on 3 January 2008, while the instant petition was filed on 4 February
2008.
As we held in Aznar Brothers Realty, Inc. v. CA,125 injunction does not lie when the act sought to be enjoined has
already become a fait accompli or an accomplished or consummated act.
Parties must observe the hierarchy of courts before seeking relief from this Court. Observance thereof minimizes
the imposition on the already limited time of this Court and prevents delay, intended or otherwise, in the
adjudication of cases.126 We do not appreciate the litigants' practice of directly seeking recourse before this Court,
relying on the gravitas of a personality yet making serious claims without the proof to support them.
WHEREFORE, the petition is DISMISSED. The prayer for the issuance of a writ of preliminary injunction and/or
temporary restraining order is DENIED.
SO ORDERED.

ASSOCIATED COMMUNICATIONS & WIRELESS SERVICES UNITED BROADCASTING NETWORKS vs. NTC
G.R. No. 144109. February 17, 2003

DECISION
For many years now, there has been a pervading confusion in the state of affairs of the broadcast industry
brought about by conflicting laws, decrees, executive orders and other pronouncements promulgated during the
Martial Law regime.[1] The question that has taken a long life is whether the operation of a radio or television station
requires a congressional franchise. The Court shall now lay to rest the issue.
This is a petition for review on certiorari of the Court of Appeals January 31, 2000 decision and February 21,
2000 resolution affirming the January 13, 1999 decision of the National Telecommunications Commission (NTC for
brevity).
First, the facts.
On November 11, 1931, Act No. 3846, entitled An Act Providing for the Regulation of Radio Stations and
Radio Communications in the Philippines and for Other Purposes, was enacted. Sec. 1 of the law reads, viz:
Sec. 1. No person, firm, company, association, or corporation shall construct, install, establish, or operate a radio
transmitting station, or a radio receiving station used for commercial purposes, or a radio broadcasting station,
without having first obtained a franchise therefor from the Congress of the Philippines...
Pursuant to the above provision, Congress enacted in 1965 R.A. No. 4551, entitled An Act Granting Marcos J.
Villaverde, Jr. and Winfred E. Villaverde a Franchise to Construct, Install, Maintain and Operate Public
Radiotelephone and Radiotelegraph Coastal Stations, and Public Fixed and Public Based and Land Mobile
Stations within the Philippines for the Reception and Transmission of Radiotelephone and Radiotelegraph for
Domestic Communications and Provincial Telephone Systems in Certain Provinces. It gave the grantees a 50-year
franchise.[2]In 1969, the franchise was transferred to petitioner Associated Communications & Wireless Services
United Broadcasting Network, Inc. (ACWS for brevity) through Congress Concurrent Resolution No. 58. [3] Petitioner
ACWS then engaged in the installation and operation of several radio stations around the country.
In 1974, P.D. No. 576-A, Regulating the Ownership and Operation of Radio and Television Stations and for
other Purposes was issued, with the following pertinent provisions on franchise of radio and television broadcasting
systems:
Sec. 1. No radio station or television channel may obtain a franchise unless it has sufficient capital on the basis of
equity for its operation for at least one year, including purchase of equipment.
xxxxxxxxx
Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of authority to operate radio or television
broadcasting systems shall terminate on December 31, 1981. Thereafter, irrespective of any franchise, grant,
license, permit, certificate or other forms of authority to operate granted by any office, agency or person, no radio or
television station shall be authorized to operate without the authority of the Board of Communications and the
Secretary of Public Works and Communications or their successors who have the right and authority to assign to
qualified parties frequencies, channels or other means of identifying broadcasting system; Provided, however, that
any conflict over, or disagreement with a decision of the aforementioned authorities may be appealed finally to the
Office of the President within fifteen days from the date the decision is received by the party in interest.
A few years later or in 1979, E.O. No. 546[4] was issued. It integrated the Board of Communications and the
Telecommunications Control Bureau under the Integrated Reorganization Plan of 1972 into the NTC. Among the
powers vested in the NTC under Sec. 15 of E.O. No. 546 are the following:
a. Issue Certificate of Public Convenience for the operation of communication utilities and services, radio
communications systems, wire or wireless telephone or telegraph system, radio and television broadcasting system
and other similar public utilities;
xxxxxxxxx
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems and radio
communication systems including amateur radio stations and radio and television broadcasting systems; . . .
Upon termination of petitioners franchise on December 31, 1981 pursuant to P.D. No. 576-A, it continued
operating its radio stations under permits granted by the NTC.
As these presidential issuances relating to the radio and television broadcasting industry brought about
confusion as to whether the NTC could issue permits to radio and television broadcast stations without legislative
franchise, the NTC sought the opinion of the Department of Justice (DOJ) on the matter. On June 20, 1991, the
DOJ rendered Opinion No. 98, Series of 1991, viz:
We believe that under P.D. No. 576-A dated November 11, 1974 and prior to the issuance of E.O No. 546 dated
July 23, 1979, the NTC, then Board of Communications, had no authority to issue permits or authorizations to
operate radio and television broadcasting systems without a franchise first being obtained pursuant to Section 1 of
Act No. 3846, as amended. A close reading of the provisions of Sections 1 and 6 of P.D. No. 576-A, supra, does
not reveal any indication of a legislative intent to do away with the franchising requirement under Section 1 of Act
No. 3846. In fact, a mere reading of Section 1 would readily indicate that a franchise was necessary for the
operation of radio and television broadcasting systems as it expressly provided that no such franchise may be
obtained unless the radio station or television channel has sufficient capital on the basis of equity for its operation
for at least one year, including purchase of equipment.
It is believed that the termination of all franchises granted for the operation of radio and television broadcasting
systems effective December 31, 1981 and the vesting of the power to authorize the operation of any radio or
television station upon the Board of Communications and the Secretary of Public Works and Communications and
their successors under Section 6 of P.D. No. 576-A does not necessarily imply the abrogation of the requirement of
obtaining a franchise under Section 1 of Act No. 3846, as amended, in the absence of a clear provision in P.D. No.
576-A providing to this effect.
It should be noted that under Act No. 3846, as amended, a person, firm or entity desiring to operate a radio
broadcasting station must obtain the following: (a) a franchise from Congress (Sec. 1); (b) a permit to construct or
install a station from the Secretary of Commerce and Industry (Sec. 2); and (c) a license to operate the station also
from the Secretary of Commerce and Industry (id.). The franchise is the privilege granted by the State through its
legislative body and is subject to regulation by the State itself by virtue of its police power through its administrative
agencies (RCPI vs. NTC, 150 SCRA 450). The permit and license are the administrative authorizations issued by
the administrative agency in the exercise of regulation. It is clear that what was transferred to the Board of
Communications and the Secretary of Commerce and Industry under Section 6 of P.D. No. 576-A was merely the
regulatory powers vested solely in the Secretary of Commerce and Industry under Section 2 of Act No. 3846, as
amended. The franchising authority was retained by the then incumbent President as repository of legislative power
under Martial Law, as is clearly indicated in the first WHEREAS clause of P.D. No. 576-A to wit:
WHEREAS, the President of the Philippines is empowered under the Constitution to review and approve franchises
for public utilities.
Of course, under the Constitution, said power (the power to review and approve franchises), belongs to the
lawmaking body (Sec. 5, Art. XIV, 1973 Constitution; Sec. 11, Art. XII, 1987 Constitution).
The corollary question to be resolved is: Has E.O. No 546 (which is a law issued pursuant to P.D. No. 1416, as
amended by P.D. No. 1771, granting the then President continuing authority to reorganize the administrative
structure of the national government) modified the franchising and licensing arrangement for radio and television
broadcasting systems under P.D. No. 576-A?
We believe so.
E.O. No. 546 integrated the Board of Communications and the Telecommunications Bureau into a single entity
known as the NTC (See Sec. 14), and vested the new body with broad powers, among them, the power to issue
Certificates of Public Convenience for the operation of communications utilities, including radio and televisions
broadcasting systems and the power to grant permits for the use of radio frequencies (Sec. 14[a] and
[c], supra). Additionally, NTC was vested with broad rule making authority to encourage a larger and more effective
use of communications, radio and television broadcasting facilities, and to maintain effective competition among
private entities in these activities whenever the Commission finds it reasonably feasible (Sec. 15[f]).
In the recent case of Albano vs. Reyes (175 SCRA 264), the Supreme Court held that franchises issued by
Congress are not required before each and every public utility may operate. Administrative agencies may be
empowered by law to grant licenses for or to authorize the operation of certain public utilities. The Supreme Court
stated that the provision in the Constitution (Art. XII, Sec. 11) that the issuance of a franchise, certificate or other
form of authorization for the operation of a public utility shall be subject to amendment, alteration or repeal by
Congress, does not necessarily imply . . . that only Congress has the power to grant such authorization. Our statute
books are replete with laws granting specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities.
We believe that E.O. No. 546 is one law which authorizes an administrative agency, the NTC, to issue
authorizations for the operation of radio and television broadcasting systems without need of a prior franchise
issued by Congress.
Based on all the foregoing, we hold the view that NTC is empowered under E.O. No. 546 to issue authorization and
permits to operate radio and television broadcasting system.[5]
However, on May 3, 1994, the NTC, the Committee on Legislative Franchises of Congress, and the Kapisanan
ng mga Brodkaster sa Pilipinas of which petitioner is a member of good standing, entered into a Memorandum of
Understanding (MOU) that requires a congressional franchise to operate radio and television stations. The MOU
states, viz:
WHEREAS, under the provisions of Section 1 of Act No. 3846 (Radio Laws of the Philippines, as amended), only
radio and television broadcast stations with legislative franchise are authorized to operate.
WHEREAS, Executive Order No. 546, which created the National Telecommunications Commission (NTC) and
abolished the Board of Communications (BOC) and the Telecommunications Control Bureau (TCB), and integrated
the functions and prerogative of the latter two agencies into the National Telecommunications Commission (NTC);
WHEREAS, the National Telecommunications Commission (NTC) is authorized to issue certificate of public
convenience for the operation of radio and television broadcast stations;
WHEREAS, there is a pervading confusion in the state of affairs of the broadcast industry brought about by
conflicting laws, decrees, executive orders and other pronouncements promulgated during the Martial Law regime,
the parties in their common desire to rationalize the broadcast industry, promote the interest of public welfare, avoid
a vacuum in the delivery of broadcast services, and foremost to better serve the ends of press freedom, the parties
hereto have agreed as follows:
The NTC shall continue to issue and grant permits or authorizations to operate radio and television broadcast
stations within their mandate under Section 15 of Executive Order No. 546, provided that such temporary permits or
authorization to operate shall be valid for two (2) years within which the permittee shall be required to file an
application for legislative franchise with Congress not later than December 31, 1994; provided finally, that if the
permittee of the temporary permit or authorization to operate fails to secure the legislative franchise with Congress
within this period, the NTC shall not extend or renew its permit or authorization to operate any further. [6]
Prior to the December 31, 1994 deadline set by the MOU, petitioner filed with Congress an application for a
franchise on December 20, 1994. Pending its approval, the NTC issued to petitioner a temporary permit dated July
7, 1995 to operate a television station via Channel 25 of the UHF Band from June 29, 1995 to June 28, 1997. [7] In
1996, the NTC authorized petitioner to increase the power output of Channel 25 from 1.0 kilowatt to 25 kilowatts
after finding it financially and technically capable; [8] it also granted petitioner a permit to purchase radio
transmitters/transceivers for use in its television Channel 25 broadcasting. [9] Shortly before the expiration of its
temporary permit, petitioner applied for its renewal on May 14, 1997.[10]
On October 28, 1997, the House Committee on Legislative Franchises of Congress replied to an inquiry of the
NTCs Broadcast Division Chief regarding the franchise application of ACWS filed on December 20, 1994. The
Committee certified that petitioners franchise application was not deliberated on by the 9 th Congress because
petitioner failed to submit the required supporting documents. In the next Congress, petitioner did not re-file its
application.[11]
The following month or on November 17, 1997, the NTCs Broadcast Service Department wrote to petitioner
ordering it to submit a new congressional franchise for the operation of its seven radio stations and informing it that
pending compliance, its application for temporary permits to operate these radio stations would be held in
abeyance.[12] Petitioner failed to comply with the franchise requirement; it claims that it did not receive the
November 17, 1997 letter.
Despite the absence of a congressional franchise, the NTC notified petitioner on January 19, 1998 that its May
14, 1997 application for renewal of its temporary permit to operate television Channel 25 was approved and would
be released upon payment of the prescribed fee of P3,600.00.[13] After paying said amount,[14] however, the NTC
refused to release to petitioner its renewed permit. Instead, the NTC commenced against petitioner Administrative
Case No. 98-009 based on the November 17, 1997 letter. On February 26, 1998, the NTC issued an Order
directing petitioner to show cause why its assigned frequency, television Channel 25, should not be recalled for lack
of the required congressional franchise. Petitioner was also directed to cease and desist from operating Channel 25
unless subsequently authorized by the NTC.[15]
In compliance with the February 26, 1998 Order, petitioner filed its Answer on March 17, 1998. [16] In a hearing
on April 22, 1998, petitioner presented evidence and asked for continuance of the presentation to May 20,
1998.[17] On May 4, 1998, however, petitioner filed before the Court of Appeals a Petition for Mandamus,
Prohibition, and Damages to compel the NTC to release its temporary permit to operate Channel 25 which was
approved in January 1998. The appellate court denied the petition on September 30, 1998.
Meantime, on August 17, 1998, the NTC issued Memorandum Circular No. 14-10-98 which reads, viz:
SUBJECT: Guidelines in the Renewal/Extension of Temporary Permit of Radio/TV Broadcast operators who failed
to secure a legislative franchise conformably with the Memorandum of Understanding (MOU) dated May 3, 1994,
entered into by and between the National Telecommunications and the Committee on Legislative Franchises,
House of Representatives, and the Kapisanan ng mga Brodkaster sa Pilipinas (KBP).
In compliance with the MOU and in order to clear the ambiguity surrounding the operation of broadcast operators
who were not able to have their legislative franchise approved during the last congress, the following guidelines are
hereby issued:
1. Existing broadcast operators who were not able to secure a legislative franchise up to this date are given up to
December 31, 1999 within which to have their application for a legislative franchise bill approved by Congress. The
franchise bill must be filed immediately but not later than November 30th of this year to give both Houses time to
deliberate upon and recommend approval/disapproval thereof.
2. Broadcast operators affected by this circular must file their respective applications for renewal/extension of their
Temporary Permits in the prescribed form together with the certification from the Committee on Legislative
Franchises, House of Representatives that a franchise bill has indeed been filed prior to 30 November 1998.
3. In the event the permittee will not be able to have its franchise bill approved within the prescribed period, the
NTC will no longer renew/extend its Temporary Permit and the Commission shall initiate the recall of its assigned
frequency provided that due process of law is observed.
4. Henceforth, no application/petition for Certificate of Public Convenience (CPC) to establish, maintain and operate
a broadcast station in the broadcast service shall be accepted for filing without showing that the applicant has an
approved Legislative Franchise.
This Memorandum Circular shall be published in one (1) newspaper of general circulation in the Philippines and
shall take effect thirty (30) days from its publication.
August 17, 1998, Quezon City, Philippines.[18]
The Memorandum Circular was published in the Philippine Star on October 15, 1998.
Well within the November 30, 1998 deadline under the Memorandum Circular, House Bill No. 3216, entitled An
Act Granting the ACWS-United Broadcasting Network, Inc. a Franchise to Construct, Install, Operate and Maintain
Radio and Television Broadcasting Stations within the Philippines, and for other Purposes, was filed with the
Legislative Calendar Section, Bills and Index Division on September 2, 1998.[19]
On January 13, 1999, the NTC rendered a decision on Administrative Case No. 98-009 against petitioner, the
dispositive portion of which reads:
WHEREFORE, for lack of a legal personality to justify the issuance of any permit or license to the respondent
(ACWS), the respondent not having a valid legislative franchise, the Commission hereby renders judgment as
follows:
1) Channel 25 assigned to herein respondent ACWS is hereby RECALLED;
2) Respondents application for renewal of its temporary permit to operate Channel 25 is hereby DENIED; and
3) Respondent is hereby ordered to CEASE and DESIST from further operating Channel 25. [20]
Petitioner sought recourse at the Court of Appeals which affirmed the NTC decision.
Hence, this petition for review on certiorari on the following grounds:
I.
THE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE NTC THAT A CONGRESSIONAL
FRANCHISE IS A CONDITION SINE QUA NON IN THE OPERATION OF A RADIO AND TELEVISION
BROADCASTING SYSTEM.
II.
THE COURT OF APPEALS ERRED IN NOT CONSIDERING OPINION 98 SERIES OF 1991 DATED JUNE 20,
1991 OF THE SECRETARY OF JUSTICE HOLDING THAT THE NTC MAY ISSUE AUTHORIZATION FOR THE
OPERATION OF RADIO AND TELEVISION BROADCASTING SYSTEMS, WITHOUT THE NEED OF A PRIOR
FRANCHISE ISSUED BY CONGRESS, AS BINDING ON THE NTC WHO REQUESTED FOR SAID OPINION
AND IS NOT MERELY ADVISORY, AS IT IS PREDICATED ON A DECISION OF THIS HONORABLE COURT.
III.
THE COURT OF APPEALS ERRED IN CONSIDERING ACT NO. 3846 AS REQUIRING A FRANCHISE FROM
CONGRESS FOR THE LAWFUL OPERATION OF RADIO OR TELEVISION BROADCASTING STATIONS WHEN
CLEARLY ITS PROVISIONS COVER ONLY RADIO BUT IT DOES NOT INCLUDE TELEVISION STATIONS.
IV.
THE COURT OF APPEALS ERRED IN UPHOLDING THE RECALL OF THE FREQUENCY CHANNEL 25
PREVIOUSLY ASSIGNED TO THE PETITIONER AND/OR THE CANCELLATION OF ITS PERMIT TO OPERATE
WHICH IS UNREASONABLE, UNFAIR, OPPRESSIVE, WHIMSICAL AND CONFISCATORY WHEN IT
PREVIOUSLY ISSUED THE SAID PERMIT WITHOUT REQUIRING A LEGISLATIVE FRANCHISE.
V.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT NTC CASE NO. 98-009 HAD BEEN RENDERED
MOOT AND ACADEMIC WITH THE ADOPTION AND PROMULGATION BY THE NTC OF MEMORANDUM
CIRCULAR NO. 14-10-98 DATED AUGUST 17, 1998 AS PETITIONER FILED THE APPLICATION FOR
LEGISLATIVE FRANCHISE PURSUANT THERETO.[21]
The petition is devoid of merit.
We shall discuss together the first three assigned errors as they are interrelated.
 Petitioner stresses that Act. No. 3846 covers only the operation of radio and not television stations as Section
1 of the said law does not mention television stations in its coverage, viz:
Sec. 1. No person, firm, company, association or corporation shall construct, install, establish, or operate a radio
transmitting station, or a radio receiving station used for commercial purposes, or a radio broadcasting station,
without having first obtained a franchise therefor from the Congress of the Philippines
Petitioner observes that quite understandably, television stations were not included in Act No. 3846 because the
law was enacted in 1931 when there was yet no television station in the Philippines. Following the rule in statutory
construction that what is not included in the law is deemed excluded, petitioner avers that television stations are not
covered by Act No. 3846.Petitioner notes that in fact, the NTC previously issued to it a temporary permit dated July
7, 1995 to operate Channel 25 from June 29, 1995 to June 28, 1997 without requiring a congressional
franchise. Likewise, in 1996, the NTC issued to it a permit to increase its television operating power and to
purchase a radio transmitter/transceiver for use in its television broadcasting, again without requiring a
congressional franchise. Petitioner thus argues that, contrary to the January 19, 1999 decision of the NTC, its
application for renewal of its temporary permit to operate television Channel 25 does not require a congressional
franchise.
In upholding the NTC decision, the Court of Appeals held that a congressional franchise is required for the
operation of radio and television broadcasting stations as this requirement under Act No. 3846 was not expressly
repealed by P.D. No. 576-A nor E.O. No. 546. Citing Berces, Sr. v. Guingona,[22] it ruled that without an express
repeal, a subsequent law cannot be construed as repealing a prior law unless there is an irreconcilable
inconsistency and repugnancy in the language of the new and old laws, which petitioner was not able to show.[23]
The appellate court correctly ruled that a congressional franchise is necessary for petitioner to operate
television Channel 25. Even assuming that Act No. 3846 applies only to radio stations and not to television stations
as petitioner adamantly insists, the subsequent P.D. No. 576-A clearly shows in Section 1 that a franchise is
required to operate radio as well as television stations, viz:
Sec. 1. No radio station or television channel may obtain a franchise unless it has sufficient capital on the basis
of equity for its operation for at least one year, including purchase of equipment. (emphasis supplied)
As pointed out in DOJ Opinion No. 98, there is nothing in P.D. No. 576-A that reveals any intention to do away with
the requirement of a franchise for the operation of radio and television stations. Section 6 of P.D. No. 576-A merely
identifies the regulatory agencies from whom authorizations, in addition to the required congressional franchise,
must be secured after December 31, 1981, viz:
Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of authority to operate radio or television
broadcasting systems shall terminate on December 31, 1981. Thereafter, irrespective of any franchise, grant,
license, permit, certificate or other forms of authority to operate granted by any office, agency or person,
no radio or television station shall be authorized to operate without the authority of the Board of
Communications and the Secretary of Public Works and Communications or their successors who have the
right and authority to assign to qualified parties frequencies, channels or other means of identifying broadcasting
system . . . (emphasis supplied)
To understand why it was necessary to identify these agencies, we turn a heedful eye on the laws regarding
authorizations for the operation of radio and television stations that preceded P.D. No. 576-A.
Act No. 3846 of 1931 provides, viz:
Sec. 1. No person, firm, company, association, or corporation shall construct, install, establish, or operate a radio
transmitting station, or a radio receiving station used for commercial purposes, or a radio broadcasting station,
without having first obtained a franchise therefor from the Congress of the Philippines:
xxxxxxxxx
Sec. 1-A. No person, firm, company, association or corporation shall possess or own transmitters or transceivers
(combination transmitter-receiver), without registering the same with the Secretary of Public Works and
Communications . . . and no person, firm, company, association or corporation shall construct or manufacture, or
purchase radio transmitters or transceivers without a permit issued by the Secretary of Public Works and
Communications.
xxxxxxxxx
Sec. 3. The Secretary of Public Works and Communications is hereby empowered to regulate the construction or
manufacture, possession, control, sale and transfer of radio transmitters or transceivers (combination transmitter-
receiver) and the establishment, use, the operation of all radio stations and of all forms of radio communications
and transmissions within the Philippines. In addition to the above, he shall have the following specific powers and
duties:
xxxxxxxxx
(c) He shall assign call letter and assign frequencies for each station licensed by him and for each station
established by virtue of a franchise granted by the Congress of the Philippines and specify the stations to which
each of such frequencies may be used;. . .
Shortly after the declaration of Martial Law, then President Marcos issued P.D. No. 1 dated September 24,
1972, through which the Integrated Reorganization Plan for the executive branch was adopted. Under the Plan, the
Public Service Commission was abolished and its functions transferred to special regulatory boards, among which
was the Board of Communications with the following functions:
5a. Issue Certificates of Public Convenience for the operation of communications utilities and services, radio
communications systems . . ., radio and television broadcasting systems and other similar public utilities;
xxxxxxxxx
c. Grant permits for the use of radio frequencies for . . . radio and television broadcasting systems including
amateur radio stations.
With the creation of the Board of Communications under the Plan, it was no longer sufficient to secure
authorization from the Secretary of Public Works and Communications as provided in Act No. 3846. The Boards
authorization was also necessary. Thus, P.D. No. 576-A provides in Section 6 that radio and television station
operators must secure authorization from both the Secretary of Public Works and Communications and the Board
of Communications.
Dispensing with the requirement of a congressional franchise is not in line with the declared purposes of P.D.
No. 576-A, viz:
WHEREAS, it has been observed that some public utilities, especially radio and television stations, have a
tendency toward monopoly in ownership and operation to such an extent that a region or section of the country may
be covered by any number of such broadcast stations, all or most of which are owned, operated or managed by
one person or corporation;
xxxxxxxxx
WHEREAS, on account of the limited number of frequencies available for broadcasting in the Philippines, it is
necessary to regulate the ownership and operation of radio and television stations and provide measures that
would enhance quality and viability in broadcasting and help serve the public interests; . . .
A textual interpretation of Section 6 of P.D. No. 576-A yields the same interpretation that after December 31,
1981, a franchise is still necessary to operate radio and television stations.Were it the intention of the law to do
away with the requirement of a franchise after said date, then the phrase (t)hereafter, irrespective of any franchise,
grant, license, permit, certificate or other forms of authority to operate granted by any office, agency or person
(emphasis supplied) would not have been necessary because the first sentence of Section 6 already states that
(a)ll franchises, grants, licenses, permits, certificates or other forms of authority to operate radio or television
broadcasting systems shall terminate on December 31, 1981. It is therefore already understood that these forms of
authority have no more force and effect after December 31, 1981. If the intention were to do away with the
franchise requirement, Section 6 would have simply laid down after the first sentence the requirements to operate
radio and television stations after December 31, 1981, i.e., no radio or television station shall be authorized to
operate without the authority of the Board of Communications and the Secretary of Public Works and
Communications. Instead, however, the phrase irrespective of any franchise, was inserted to emphasize that a
franchise or any other form of authorization from any office, agency or person does not suffice to operate radio and
television stations because the authorizations of both the Board of Communications and the Secretary of Public
Works and Communications are required as well. This interpretation adheres to the rule in statutory construction
that words in a statute should not be construed as surplusage if a reasonable construction which will give them
some force and meaning is possible.[24]
Contrary to the opinion of the Secretary of Justice in DOJ Opinion No. 98, Series of 1991, the appellate court
was correct in ruling that E.O. No. 546 which came after P.D. No. 576-A did not dispense with the requirement of a
congressional franchise. It merely abolished the Board of Communications and the Telecommunications Control
Bureau under the Reorganization Plan and transferred their functions to the NTC,[25] including the power to issue
Certificates of Public Convenience (CPC) and grant permits for the use of frequencies, viz:
Sec. 15. a. Issue Certificate of Public Convenience for the operation of communication utilities and services, radio
communications systems, wire or wireless telephone or telegraph system, radio and television broadcasting system
and other similar public utilities;
xxxxxxxxx
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems and radio
communication systems including amateur radio stations and radio and television broadcasting systems; . . .
E.O. No. 546 defines the regulatory and technical aspect of the legal process preparatory to the full exercise of the
privilege to operate radio and television stations, which is different from the grant of a franchise from Congress, viz:
The statutory functions of NTC may then be given effect as Congress prerogative to grant franchises under Act No.
3846 is upheld for they are distinct forms of authority. The former covers matters dealing mostly with the technical
side of radio or television broadcasting, while the latter involves the exercise by the legislature of an exclusive
power resulting in a franchise or a grant under authority of government, conferring a special right to do an act or
series of acts of public concern (37 C.J.S., secs. 1, 14, pp. 144, 157).
In fine, there being no clear showing that the laws here involved cannot stand together, the presumption is against
inconsistency or repugnance, hence, against implied repeal of the earlier law by the later statute (Agujetas v. Court
of Appeals, 261 SCRA 17, 1996).[26]
As we held in Radio Communication of the Philippines, Inc. v. National Telecommunications
Commission,[27] a franchise is distinguished from a CPC in that the former is a grant or privilege from the sovereign
power, while the latter is a form of regulation through the administrative agencies, viz:
A franchise started out as a royal privilege or (a) branch of the Kings prerogative, subsisting in the hands of a
subject. This definition was given by Finch, adopted by Blackstone, and accepted by every authority since (State v.
Twin Village Water Co., 98 Me 214, 56 A 763 [1903]). Today, a franchise, being merely a privilege emanating from
the sovereign power of the state and owing its existence to a grant, is subject to regulation by the state itself by
virtue of its police power through its administrative agencies.[28]
Even prior to E.O. No. 546, the NTCs precursor, i.e., the Board of Communications, already had the function
of issuing CPC under the Integrated Reorganization Plan. The CPC was required by the Board at the same time
that P.D. No. 576-A required a franchise to operate radio and television stations. The function of the NTC to issue
CPC under E.O. No. 546 is thus nothing new and exists alongside the requirement of a congressional franchise
under P.D. No. 576-A. There is no conflict between E.O. No. 546 and P.D. No 576-A; Section 15 of the former does
not dispense with the franchise requirement in the latter. We adhere to the cardinal rule in statutory construction
that statutes in pare materia, although in apparent conflict, or containing apparent inconsistencies, should, as far as
reasonably possible, be construed in harmony with each other, so as to give force and effect to each. [29] The ruling
of this Court in Crusaders Broadcasting System, Inc. v. National Telecommunications
Commission,[30] buttresses the interpretation that the requirement of a congressional franchise for the operation of
radio and television stations exists alongside the requirement of a CPC. In that case, we held that under E.O. No.
546, the regulation of radio communications is a function assigned to and performed by the NTC and at the same
time recognized the requirement of a congressional franchise for the operation of a radio station under Act No.
3846. We did not interpret E.O. No. 546 to have repealed the congressional franchise requirement under Act No.
3846 as these two laws are not inconsistent and can both be given effect. Likewise, in Radio Communication of
the Philippines, Inc. v. National Telecommunications Commission,[31] we recognized the necessity of both a
congressional franchise under Act No. 3846 and a CPC under E.O. No. 546 to operate a radio communications
system.
In buttressing its position that a congressional franchise is not required to operate its television station,
petitioner banks on DOJ Opinion No. 98, Series of 1991 which states that under E.O. No. 546, the NTC may issue
a permit or authorization for the operation of radio and television broadcasting systems without a prior franchise
issued by Congress. Petitioner argues that the opinion is binding and conclusive upon the NTC as the NTC itself
requested the advisory from the Secretary of Justice who is the legal adviser of government. Petitioner claims that it
was precisely because of the above DOJ Opinion No. 98 that the NTC did not previously require a congressional
franchise in all of its applications for permits with the NTC.
Petitioner, however, cannot rely on DOJ Opinion No. 98 as this opinion is merely persuasive and not
necessarily controlling.[32] As shown above, the opinion is erroneous insofar as it holds that E.O. No. 546 dispenses
with the requirement of a congressional franchise to operate radio and television stations. The case of Albano v.
Reyes[33] cited in the DOJ opinion, which allegedly makes it binding upon the NTC, does not lend support to
petitioners cause. In that case, we held, viz:
Franchises issued by Congress are not required before each and every public utility may operate. Thus, the law
has granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain
public utilities. (See E.O. Nos. 172 and 202)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise, certificate or other form of
authorization for the operation of a public utility shall be subject to amendment, alteration or repeal by Congress
does not necessarily imply, as petitioner posits, that only Congress has the power to grant such authorization. Our
statute books are replete with laws granting specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities. (footnote omitted)[34]
Our ruling in Albano that a congressional franchise is not required before each and every public utility may
operate should be viewed in its proper light. Where there is a law such as P.D. No. 576-A which requires a
franchise for the operation of radio and television stations, that law must be followed until subsequently
repealed. As we have earlier shown, however, there is nothing in the subsequent E.O. No. 546 which evinces an
intent to dispense with the franchise requirement. In contradistinction with the case at bar, the law applicable
in Albano, i.e., E.O. No. 30, did not require a franchise for the Philippine Ports Authority to take over, manage and
operate the Manila International Port Complex and undertake the providing of cargo handling and port related
services thereat. Similarly, in Philippine Airlines, Inc. v. Civil Aeronautics Board, et al.,[35] we ruled that a
legislative franchise is not necessary for the operation of domestic air transport because there is nothing in the law
nor in the Constitution which indicates that a legislative franchise is an indispensable requirement for an entity to
operate as a domestic air transport operator.[36] Thus, while it is correct to say that specified agencies in the
Executive Branch have the power to issue authorization for certain classes of public utilities, this does not mean
that the authorization or CPC issued by the NTC dispenses with the requirement of a franchise as this is clearly
required under P.D. No. 576-A.
Petitioner contends that the NTC erroneously denied its application for renewal of its temporary permit to
operate Channel 25 and recalled its Channel 25 frequency based on the May 3, 1994 MOU that requires a
congressional franchise for the operation of television broadcast stations. The MOU is not an act of Congress and
thus cannot amend Act No. 3846 which requires a congressional franchise for the operation of radio stations alone,
and not television stations.
We find no merit in petitioners contention. As we have shown, even assuming that Act No. 3846 requires only
radio stations to secure a congressional franchise for its operation, P.D. No. 576-A was subsequently issued in
1974, which clearly requires a franchise for both radio and television stations. Thus, the 1994 MOU did not amend
any law, but merely clarified the existing law that requires a franchise.
That the legislative intent is to continue requiring a franchise for the operation of radio and television
broadcasting stations is clear from the franchises granted by Congress after the effectivity of E.O. No. 546 in 1979
for the operation of radio and television stations. Among these are: (1) R.A. No. 9131 dated April 24, 2001, entitled
An Act Granting the Iddes Broadcast Group, Inc., a Franchise to Construct, Install, Establish, Operate and Maintain
Radio and Television Broadcasting Stations in the Philippines; (2) R.A. No. 9148 dated July 31, 2001, entitled An
Act Granting the Hypersonic Broadcasting Center, Inc., a Franchise to Construct, Install, Establish, Operate and
Maintain Radio Broadcasting Stations in the Philippines; and (3) R.A. No. 7678 dated February 17, 1994, entitled
An Act Granting the Digital Telecommunication Philippines, Incorporated, a Franchise to Install, Operate and
Maintain Telecommunications Systems Throughout the Philippines. All three franchises require the grantees to
secure a CPCN/license/permit to construct and operate their stations/systems. Likewise, the Tax Reform Act of
1997 provides in Section 119 for tax on franchise of radio and/or television broadcasting companies, viz:
Sec. 119. Tax on Franchises. Any provision of general or special law to the contrary notwithstanding, there shall be
levied, assessed and collected in respect to all franchises on radio and/or television broadcasting
companies whose annual gross receipts of the preceding year does not exceed Ten million pesos (P10,000,000),
subject to Section 236 of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of two
percent (2%) on the gross receipts derived from the business covered by the law granting the franchise. . .
(emphasis supplied)
Undeniably, petitioner is aware that a congressional franchise is necessary to operate its television station
Channel 25 as shown by its actuations. Shortly before the December 31, 1994 deadline set in the MOU, petitioner
filed an application for a franchise with Congress. It was not, however, acted upon in the 9th Congress for
petitioners failure to submit the necessary supporting documents; petitioner failed to re-file the application in the
following Congress. Petitioner also filed an application for a franchise with Congress on September 2, 1998, before
the November 30, 1998 deadline under Memorandum Circular No. 14-10-98.[37]
 We now come to the fourth assigned error. Petitioner avers that the Court of Appeals erred in upholding the
recall of frequency Channel 25 previously assigned to it and the cancellation of its permit to operate which was
already approved in January 1998. It claims that these acts of the NTC were unreasonable, unfair, oppressive,
whimsical and confiscatory considering that the NTC previously issued petitioner a temporary permit without
requiring a congressional franchise.
On February 26, 1998, the NTC issued a show cause order to petitioner with the following decretal portion:
IN VIEW THEREOF, respondents are hereby directed to show cause in writing within ten (10) days from receipt of
this order why their assigned frequency, more specifically Channel 25 in the UHF Band, should not be recalled for
lack of the necessary Congressional Franchise as required by Section 1, Act No. 3846, as amended.
Moreover, respondent is hereby directed to cease and desist from operating DWQH-TV, unless subsequently
authorized by the Commission.[38]
The order was supposedly based on a letter of the NTC dated November 17, 1997 informing petitioner that its
application for renewal of temporary permits of its seven radio stations were being held in abeyance pending
submission of its new congressional franchise. Petitioner was directed to submit the franchise within thirty days
from expiration of its temporary permits to be renewed and informed that its failure to do so might constitute denial
of its application.
Petitioner is correct that the November 17, 1997 letter referred only to its radio stations and not to its television
Channel 25. Thus, it could not serve as basis for the February 26, 1998 show cause order which referred solely to
its television Channel 25. Besides, petitioner claims that it did not receive the letter. Be that as it may, the NTCs
February 26, 1998 order for petitioner to cease and desist from operating Channel 25 was not unreasonable, unfair,
oppressive, whimsical and confiscatory. The 1994 MOU states in unmistakable terms that petitioners temporary
permit to operate Channel 25 would be valid for only two years, i.e., from June 29, 1995 to June 28, 1997. During
these two years, petitioner was supposed to have secured a congressional franchise, otherwise the NTC shall not
extend or renew its permit or authorization to operate any further.[39] Apparently, petitioner did not submit a
congressional franchise to the NTC in applying for renewal of this temporary permit on May 14, 1997. The NTCs
approval of petitioners application to renew its temporary permit in January 1998 was thus erroneous because
under the 1994 MOU, the NTC could not renew petitioners temporary permit to operate Channel 25 without a
congressional franchise. In the absence of a renewed temporary permit, the NTC was correct in ordering petitioner
to cease and desist from operating Channel 25, regardless of whether or not petitioner received the November 17,
1997 letter. The NTCs erroneous approval of petitioners application in January 1998 did not estop the NTC from
ordering petitioner on February 26, 1998 to cease and desist from operating Channel 25 for failure to comply with
the franchise requirement as estoppel does not work against the government. [40]
Likewise, the NTCs denial of petitioners application for renewal of its temporary permit to operate Channel 25
and recall of its Channel 25 frequency in its January 13, 1999 decision were not unreasonable, unfair, oppressive,
whimsical and confiscatory so as to offend petitioners right to due process. In Crusaders Broadcasting System,
Inc. v. National Telecommunications Commission,[41] the Court ruled that although a particular ground for
suspending operations of the broadcasting company was not reflected in the show cause order, the NTC could
nevertheless raise said ground if any basis therefore was gleaned during the administrative proceedings. In the
instant case, the lack of congressional franchise as ground for denial of petitioners application for renewal of
temporary permit and recall of its Channel 25 frequency was raised not only during the administrative proceedings
against it, but was even stated in the February 26, 1998 show cause order, viz:
IN VIEW THEREOF, respondents are hereby directed to show cause in writing within ten (10) days from receipt of
this order why their assigned frequency, more specifically Channel 25 in the UHF Band, should not be recalled for
lack of the necessary Congressional Franchise as required by Section 1, Act No. 3846, as amended.
Moreover, respondent is hereby directed to cease and desist from operating DWQH-TV, unless subsequently
authorized by the Commission. [42] (emphasis supplied)
In Eastern Broadcasting Corporation v. Dans, Jr., et al.,[43] we held that the requirements of due process in
administrative proceedings laid down by this Court in Ang Tibay v. Court of Industrial Relations[44] should be
satisfied before a broadcast station may be closed or its operations curtailed. We enumerated these
requirements, viz:
. . . (1) the right to a hearing which includes the right to present ones case and submit evidence in support thereof;
(2) the tribunal must consider the evidence presented; (3) the decision must have something to support itself; (4)
the evidence must be substantial. Substantial evidence means such reasonable evidence as a reasonable mind
might accept as adequate to support a conclusion; (5) the decision must be based on the evidence presented at the
hearing, or at least contained in the record and disclosed to the parties affected; (6) the tribunal or body or any of its
judges must act on its own independent consideration of the law and facts of the controversy and not simply accept
the views of a subordinate; (7) the board or body should, in all controversial questions, render its decisions in such
a manner that the parties to the proceeding can know the various issues involved, and the reasons for the decision
rendered.[45]
Petitioner had the opportunity to present its case and submit evidence on why its assigned frequency Channel 25
should not be recalled and its application for renewal denied. Petitioner filed its Answer to the show cause order on
March 17, 1998.[46] A hearing was held on April 22, 1998 wherein petitioner presented its evidence in compliance
with the show cause order.Based on the NTCs findings that petitioner failed to comply with the requirement of a
congressional franchise, the NTC denied its application for renewal of its temporary permit to operate Channel 25
and recalled its assigned Channel 25 frequency. The requirements of due process in Ang Tibay were satisfied,
thus petitioner cannot say that the NTCs actions were unreasonable, unfair, oppressive, whimsical and
confiscatory.
Finally, petitioner contends that the Court of Appeals erred in not holding that Administrative Case No. 98-009,
the administrative proceeding against it for failure to secure a congressional franchise to operate its television
Channel 25, has been rendered moot and academic by the adoption and promulgation of NTC Memorandum
Circular No. 14-10-98 dated August 17, 1998 which took effect on November 15, 1998. The Memorandum Circular
states, viz:
In compliance with the MOU and in order to clear the ambiguity surrounding the operation of broadcast operators
who were not able to have their legislative franchise approved during the last Congress, the following guidelines are
hereby issued:
1. Existing broadcast operators who were not able to secure a legislative franchise up to this date (August 17,
1998) are given up to December 31, 1999 within which to have their application for a legislative franchise bill
approved by Congress. The franchise bill must be filed immediately but not later than November 30 th of this year . .
.
Petitioner avers that the NTC erroneously held that this Memorandum Circular is not applicable to it because
the words of the circular are clear that it covers existing broadcasting operators including petitioner. In compliance
with the Memorandum Circular, petitioner filed House Bill No. 32 on September 2, 1998, well within the November
30, 1998 deadline. Thus, petitioner argues that the NTC erred in denying its application for renewal of permit to
operate Channel 25 and recalling its assigned Channel 25 frequency on January 13, 1999, long before the
Memorandum Circulars December 31, 1999 deadline to secure a congressional franchise. Petitioner posits that the
NTCs premature and arbitrary promulgation of its January 13, 1999 decision slammed the door for the petitioner to
secure its legislative franchise. The pending application for legislative franchise of petitioner was effectively struck
out by said NTC decision.[47]
Whether or not the benefits of the Memorandum Circular extend to petitioner, the fact is, as correctly pointed
out by the appellate court, petitioner failed to secure a legislative franchise by December 31, 1999. Consequently,
the NTCs recall of petitioners assigned frequency Channel 25 and denial of its application for renewal of its permit
to operate the said television channel were proper as the Memorandum Circular provides, viz:
1. Existing broadcast operators who are not able to secure a legislative franchise up to this date (August 17, 1998)
are given up to December 31, 1999 within which to have their application for a legislative franchise approved by
Congress. The franchise bill must be filed immediately but not later than November 30th of this year . . .
xxxxxxxxx
3. In the event the permittee will not be able to have its franchise bill approved within the prescribed period, the
NTC will no longer renew/extend its temporary permit and the Commission shall initiate the recall of its
assigned frequency provided that due process of law is observed.
4. Henceforth, no application/petition for Certificate of Public Convenience (CPC) to establish, maintain and operate
a broadcast station in the broadcast service shall be accepted for filing without showing that the applicant has an
approved legislative franchise.(emphasis supplied)
Petitioners argument is flawed when it states that the January 13, 1999 decision of the NTC slammed the door on
its application for a congressional franchise as the process of securing a congressional franchise is separate and
distinct from the process of applying for renewal of a temporary permit with the NTC. The latter is not a prerequisite
to the former. In fact, in the normal course of securing authorizations to operate a television and radio station, the
application for a CPC with the NTC comes after securing a franchise from Congress.[48] The CPC is not a condition
for the grant of a congressional franchise.[49]
The Court is not unmindful that there is a trend towards delegating the legislative power to authorize the operation
of certain public utilities to administrative agencies and dispensing with the requirement of a congressional
franchise as in the Albano case which involved the provision of cargo handling and port related services at the
Manila International Port Complex and the PAL case involving the operation of domestic air transport. The
rationale for this trend was explained in the PAL case, viz:
. . . With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and
the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of
greater powers by the legislature, and towards the approval of the practice by the courts. (Pangasinan
Transportation Co., Inc. vs. The Public Service Commission, G.R. No. 47065, June 26, 1940, 70 Phil 221.) It is
generally recognized that a franchise may be derived indirectly from the state through a duly designated agency,
and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those
of a legislative nature. (Dyer vs. Tuskaloosa Bridge Co., 2 Port. 296, 27 Am. D. 655; Christian-Todd Tel. Co. vs.
Commonwealth, 161 S.W. 543, 156 Ky. 557, 37 C.J.S. 158) In pursuance of this, it has been held that privileges
conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though
the grant had been made by an act of the Legislature. (Superior Water, Light and Power Co. vs. City of Superior,
181 N.W. 113, 174 Wis. 257, affirmed 183 N.W. 254, 37 C.J.S. 158.)
The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate and control
the operation of public services under reasonable rules and regulations, and as a general rule, courts will not
interfere with the exercise of that discretion when it is just and reasonable and founded upon a legal right.[50]
The criticism against the requirement of a congressional franchise is incisively expressed by a public utilities
lawyer, viz:
As will be noted, a legislative franchise is required to install and operate a radio station before an applicant can
apply for a Certificate of Public Convenience to operate a radio station based in any part of the country. Under Act
No. 3846 of 1929, Sec. 1, it was provided that no one may install and operate a radio station without having first
obtained a franchise therefore from the Congress of the Philippines. Since then, this has been strictly followed. And
this holds true with respect to application for electric, telephone and many other telecommunications
services. Before, even mere application for authority to operate an ice plant must have prior congressional
franchise. But this was not strictly followed until ice plant operations were eventually deregulated. Right now, the
both houses of the legislature are saddled with House Bill Nos. etc. for the grant of legislative franchise to operate
this and that public utility services in various places in the Philippines. We hear during sessions in both houses the
time wasted on reports and considerations of these house bills for grant of franchises. The legislature is
empowered and has created respective regulatory bodies with requisite expertise to handle franchising and
regulation of such types of public utility services, why not just entrust all these functions to them?
What exactly is the reason or rationale for imposing a prior congressional franchise? There seems to be no valid
reason for it except to impose added burden and expenses on the part of the applicant. The justification appears to
be simply because this was required in the past so it is now. We are reminded of the forceful denunciation of
Justice Holmes of a stubborn adherence to an anachronistic rule of law:
It is revolting to have no better reason for a rule of law that so it was laid down in the time of Henry IV. It is still more
revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from
blind imitation of the past. (The Path of the Law, Collected Legal Papers [1920] 210, 212 quoted from The Justice
Holmes Reader, Julius N. Marke, 1955 ed., p. 278.)[51]
The call to dispense with the requisite legislative franchise must, however, be addressed to Congress as the
lawmaker of the land for the Courts function is to interpret and not to rewrite the law. As long as the law remains
unchanged, the requirement of a franchise to operate a television station must be upheld.
WHEREFORE, the petition is DENIED and the Court of Appeals January 13, 2000 decision and February 21,
2000 resolution are AFFIRMED. No costs.
SO ORDERED.
United States Supreme Court

A.L.A. SCHECHTER POULTRY CORPORATION v. UNITED STATES, (1935)

No. 854 Argued: Decided: May 27, 1935

Phrase 'unfair methods of competition' within Federal Trade Commission Act has broader meaning than common-
law term 'unfair competition,' but its scope cannot be precisely defined, and what constitutes 'unfair methods of
competition' must be determined in particular instances, upon evidence, in light of particular competitive conditions
and of what is found to be a specific and substantial public interest (Federal Trade Commission Act 5 (15 USCA
45)).[ A.L.A. Schechter Poultry Corporation v. United States 295 U.S. 495 (1935) ]
[295 U.S. 495, 500] Messrs. Joseph Heller, Frederick H. Wood, and Jacob E. Heller, all of New York City, for
petitioner A.L.A. Schechter Corporation and others.
[295 U.S. 495, 508] The Attorney General and Messrs. Stanley F. Reed, Sol. Gen., and Donald R. Richberg, both
of Washington, D.C., for the United States.
[295 U.S. 495, 519]
Mr. Chief Justice HUGHES delivered the opinion of the Court.
Petitioners in No. 854 were convicted in the District Court of the United States for the Eastern District of New York
on eighteen counts of an indictment charging violations of what is known as the 'Live Poultry Code,'1 and on an
additional count for conspiracy to commit such violations. 2 By demurrer to the indictment and appropriate motions
on the trial, the defendants contended (1) that the code had been adopted pursuant to an unconstitutional
delegation by Congress of legislative power; (2) that it attempted to regulate intrastate transactions which lay
outside the authority of Congress; and (3) that in certain provisions it was repugnant to the due process clause of
the Fifth Amendment. [295 U.S. 495, 520] 'The Circuit Court of Appeals sustained the conviction on the conspiracy
count and on sixteen counts for violation of the code, but reversed the conviction on two counts which charged
violation of requirements as to minimum wages and maximum hours of labor, as these were not deemed to be
within the congressional power of regulation. 76 F.(2d) 617. On the respective applications of the defendants (No.
854) and of the government (No. 864), this Court granted writs of certiorari April 15, 1935. 295 U.S. 723 , 55 S.Ct.
651, 79 L.Ed. --.
New York City is the largest live poultry market in the United States. Ninety-six per cent. of the live poultry there
marketed comes from other states. Three-fourths of this amount arrives by rail and is consigned to commission
men or receivers. Most of these freight shipments (about 75 per cent.) come in at the Manhattan Terminal of the
New York Central Railroad, and the remainder at one of the four terminals in New Jersey serving New York City.
The commission men transact by far the greater part of the business on a commission basis, representing the
shippers as agents, and remitting to them the proceeds of sale, less commissions, freight, and handling charges.
Otherwise, they buy for their own account. They sell to slaughterhouse operators who are also called marketmen.
The defendants are slaughterhouse operators of the latter class. A.L. A. Schechter Poultry Corporation and
Schechter Live Poultry Market are corporations conducting wholesale poultry slaughterhouse markets in Brooklyn,
New York City. Joseph Schechter operated the latter corporation and also guaranteed the credits of the former
corporation, which was operated by Martin, Alex, and Aaron Schechter. Defendants ordinarily purchase their live
poultry from commission men at the West Washington Market in New York City or at the railroad terminals serving
the city, but occasionally they purchase from commission men in Philadelphia. They buy the [295 U.S. 495,
521] poultry for slaughter and resale. After the poultry is trucked to their slaughterhouse markets in Brooklyn, it is
there sold, usually within twenty-four hours, to retail poultry dealers and butchers who sell directly to consumers.
The poultry purchased from defendants is immediately slaughtered, prior to delivery, by shochtim in defendants'
employ. Defendants do not sell poultry in interstate commerce.
The 'Live Poultry Code' was promulgated under section 3 of the National Industrial Recovery Act. 3 That section,
the pertinent provisions of which are set forth in the margin,4 authorizes the President to approve 'codes of [295
U.S. 495, 522] fair competition.' SUCH A CODE may be approved for a trade or industry, upon application by one
or more trade or industrial associations or groups, if the President finds (1) that such associations or groups
'impose no inequitable restrictions on admission to membership therein and are truly representative,' and (2) that
such codes are not designed 'to promote monopolies or to eliminate or oppress small enterprises and will not
operate to discrimi-
___ '(c) The several district courts of the United States are hereby invested with jurisdiction to prevent and restrain
violations of any code of fair competition approved under this title (chapter); and it shall be the duty of the several
district attorneys of the United States, in their respective districts, under the direction of the Attorney General, to
institute proceedings in equity to prevent and restrain such violations.
'(d) Upon his own motion, or if complaint is made to the President that abuses inimical to the public interest and
contrary to the policy herein declared are prevalent in any trade or industry or subdivision thereof, and if no code of
fair competition therefor has theretofore been approved by the President, the President, after such public notice
and hearing as he shall specify, may prescribe and approve a code of fair competition for such trade or industry or
subdivision thereof, which shall have the same effect as a code of fair competition approved by the President under
subsection (a) of this section. ...
'(f) When a code of fair competition has been approved or prescribed by the President under this title (chapter), any
violation of any provision thereof in any transaction in or affecting interstate or foreign commerce shall be a
misdemeanor and upon conviction thereof an offender shall be fined not more than $500 for each offense, and
each day such violation continues shall be deemed a separate offense.' [295 U.S. 495, 523] nate against them,
and will tend to effectuate the policy' of title 1 of the act (15 USCA 701 et seq.). Such codes 'shall not permit
monopolies or monopolistic practices.' As a condition of his approval, the President may 'impose such conditions
(including requirements for the making of reports and the keeping of accounts) for the protection of consumers,
competitors, employees, and others, and in furtherance of the public interest, and may provide such exceptions to
and exemptions from the provisions of such code as the President in his discretion deems necessary to effectuate
the policy herein declared.' Where such a code has not been approved, the President may prescribe one, either on
his own motion or on complaint. Violation of any provision of a code (so approved or prescribed) 'in any transaction
in or affecting interstate or foreign commerce' is made a misdemeanor punishable by a fine of not more than $500
for each offense, and each day the violation continues is to be deemed a separate offense.
The 'Live Poultry Code' was approved by the President on April 13, 1934. Its divisions indicate its nature and
scope. The code has eight articles entitled (1) 'purposes,' (2) 'definitions,' (3) 'hours,' (4) 'wages,' (5) 'general labor
provisions,' (6) 'administration,' (7) 'trade practice provisions,' and (8) 'general.'
The declared purpose is 'To effect the policies of title I of the National Industrial Recovery Act.' The code is
established as 'a code for fair competition for the live poultry industry of the metropolitan area in and about the City
of New York.' That area is described as embracing the five boroughs of New York City, the counties of Rockland,
Westchester, Nassau, and Suffolk in the state of New York, the counties of Hudson and Bergen in the state of New
Jersey, and the county of Fairfield in the state of Connecticut.
The 'industry' is defined as including 'every person engaged in the business of selling, purchasing of re- [295 U.S.
495, 524] sale, transporting, or handling and/or slaughtering live poultry, from the time such poultry comes into the
New York metropolitan area to the time it is first sold in slaughtered form,' and such 'related branches' as may from
time to time be included by amendment. Employers are styled 'members of the industry,' and the term 'employee' is
defined to embrace 'any and all persons engaged in the industry, however compensated,' except 'members.'
The code fixes the number of hours for workdays. It provides that no employee, with certain exceptions, shall be
permitted to work in excess of forty hours in any one week, and that no employees, save as stated, 'shall be paid in
any pay period less than at the rate of fifty (50) cents per hour.' The article containing 'general labor provisions'
prohibits the employment of any person under 16 years of age, and declares that employees shall have the right of
'collective bargaining' and freedom of choice with respect to labor organizations, in the terms of section 7(a) of the
act (15 USCA 707(a). The minimum number of employees, who shall be employed by slaughterhouse operators, is
fixed; the number being graduated according to the average volume of weekly sales.
Provision is made for administration through an 'industry advisory committee,' to be selected by trade associations
and members of the industry, and a 'code supervisor,' to be appointed, with the approval of the committee, by
agreement between the Secretary of Agriculture and the Administrator for Industrial Recovery. The expenses of
administration are to be borne by the members of the industry proportionately upon the basis of volume of
business, or such other factors as the advisory committee may deem equitable, 'subject to the disapproval of the
Secretary and/or Administrator.'
The seventh article, containing 'trade practice provisions,' prohibits various practices which are said to consti-[295
U.S. 495, 525] tute 'unfair methods of competition.' The final article provides for verified reports, such as the
Secretary or Administrator may require, '(1) for the protection of consumers, competitors, employees, and others,
and in furtherance of the public interest, and (2) for the determination by the Secretary or Administrator of the
extent to which the declared policy of the act is being effectuated by this code.' The members of the industry are
also required to keep books and records which 'will clearly reflect all financial transactions of their respective
businesses and the financial condition thereof,' and to submit weekly reports showing the range of daily prices and
volume of sales' for each kind of produce.
The President approved the code by an executive order (No. 6675-A) in which he found that the application for his
approval had been duly made in accordance with the provisions of title 1 of the National Industrial Recover Act; that
there had been due notice and hearings; that the code constituted 'a code of fair competition' as contemplated by
the act and complied with its pertinent provisions, including clauses (1) and (2) of subsection (a) of section 3 of title
1 (15 USCA 703(a)(1, 2); and that the code would tend 'to effectuate the policy of Congress as declared in section
1 of Title I.' 5 [295 U.S. 495, 526] The executive order also recited that the Secretary of Agriculture and the
Administrator of the National Industrial Recovery Act had rendered separate reports as to the provisions within their
respective jurisdictions. The Secretary of Agriculture reported that the provisions of the code 'establishing standards
of fair competition (a) are regulations of transactions in or affecting the current of interstate and/or foreign
commerce and (b) are reason- [295 U.S. 495, 527] able,' and also that the code would tend to effectuate the policy
declared in title 1 of the act, as set forth in section 1 (15 USCA 701). The report of the Administrator for Industrial
Recovery dealt with wages, hours of labor, and other labor provisions. 6
Of the eighteen counts of the indictment upon which the defendants were convicted, aside from the count for
conspiracy, two counts charged violation of the minimum wage and maximum hour provisions of the code, and ten
counts were for violation of the requirement (found in the 'trade practice provisions') of 'straight killing.' This
requirement was really one of 'straight' selling. The term 'straight killing' was defined in the code as 'the practice of
requiring persons purchasing poultry for resale to accept the run of any half coop, coop, or coops, as purchased by
slaughterhouse operators, except for culls.' 7 The charges in the ten counts, respectively, were[295 U.S. 495,
528] that the defendants in selling to retail dealers and butchers had permitted 'selections of individual chickens
taken from particular coops and half coops.'
Of the other six counts, one charged the sale to a butcher of an unfit chicken; two counts charged the making of
sales without having the poultry inspected or approved in accordance with regulations or ordinances of the city of
New York; two counts charged the making of false reports or the failure to make reports relating to the range of
daily prices and volume of sales for certain periods; and the remaining count was for sales to slaughterers or
dealers who were without licenses required by the ordinances and regulations of the city of New York.
First. Two preliminary points are stressed by the government with respect to the appropriate approach to the
important questions presented. We are told that the provision of the statute authorizing the adoption of codes must
be viewed in the light of the grave national crisis with which Congress was confronted. Undoubtedly, the conditions
to which power is addressed are always to be considered when the exercise of power is challenged. Extraordinary
conditions may call for extraordinary remedies. But the argument necessarily stops short of an attempt to justify
action which lies outside the sphere of constitutional authority. Extraordinary conditions do not create or enlarge
constitutional power. 8 The Constitution established a national government with powers deemed to be adequate, as
they have proved to be both in war and peace, but these powers of the national government are limited by the
constitutional grants. Those who act under these grants are not at liberty to transcend the [295 U.S. 495,
529] imposed limits because they believe that more or different power is necessary. Such assertions of
extraconstitutional authority were anticipated and precluded by the explicit terms of the Tenth Amendment- 'The
powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the
States respectively, or to the people.'
The further point is urged that the national crisis demanded a broad and intensive co-operative effort by those
engaged in trade and industry, and that this necessary co-operation was sought to be fostered by permitting them
to initiate the adoption of codes. But the statutory plan is not simply one for voluntary effort. It does not seek merely
to endow voluntary trade or industrial associations or groups with privileges or immunities. It involves the coercive
exercise of the lawmaking power. The codes of fair competition which the statute attempts to authorize are codes of
laws. If valid, they place all persons within their reach under the obligation of positive law, binding equally those
who assent and those who do not assent. Violations of the provisions of the codes are punishable as crimes.
Second. The Question of the Delegation of Legislative Power.-We recently had occasion to review the pertinent
decisions and the general principles which govern the determination of this question. Panama Refining Company v.
Ryan, 293 U.S. 388 , 55 S.Ct. 241, 79 L.Ed . 446. The Constitution provides that 'All legislative powers herein
granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of
Representatives.' Article 1, 1. And the Congress is authorized 'To make all Laws which shall be necessary and
proper for carrying into Execution' its general powers. Article 1, 8, par. 18. The Congress is not permitted to
abdicate or to transfer to others the essential legislative functions with which it is thus vested. We have repeatedly
recognized the necessity of adapting [295 U.S. 495, 530] legislation to complex conditions involving a host of
details with which the national Legislature cannot deal directly. We pointed out in the Panama Refining Company
Case that the Constitution has never been regarded as denying to Congress the necessary resources of flexibility
and practicality, which will enable it to perform its function in laying down policies and establishing standards, while
leaving to selected instrumentalities the making of subordinate rules within prescribed limits and the determination
of facts to which the policy as declared by the Legislature is to apply. But we said that the constant recognition of
the necessity and validity of such provisions, and the wide range of administrative authority which has been
developed by means of them, cannot be allowed to obscure the limitations of the authority to delegate, if our
constitutional system is to be maintained. Id., 293 U.S. 388 , page 421, 55 S.Ct. 241.
Accordingly, we look to the statute to see whether Congress has overstepped these limitations-whether Congress
in authorizing 'codes of fair competition' has itself established the standards of legal obligation, thus performing its
essential legislative function, or, by the failure to enact such standards, has attempted to transfer that function to
others.
The aspect in which the question is now presented is distinct from that which was before us in the case of the
Panama Refining Company. There the subject of the statutory prohibition was defined. National Industrial Recovery
Act, 9(c), 15 USCA 709(c). That subject was the transportation in interstate and foreign commerce of petroleum
and petroleum products which are produced or withdrawn from storage in excess of the amount permitted by state
authority. The question was with respect to the range of discretion given to the President in prohibiting that
transportation. Id., 293 U.S. 388 , pages 414, 415, 430, 55 S.Ct. 241. As to the 'codes of fair competition,' under
section 3 of the act, the question is more funda- [295 U.S. 495, 531] mental. It is whether there is any adequate
definition of the subject to which the codes are to be addressed.
What is meant by 'fair competition' as the term is used in the act? Does it refer to a category established in the law,
and is the authority to make codes limited accordingly? Or is it used as a convenient designation for whatever set of
laws the formulators of a code for a particular trade or industry may propose and the President may approve (
subject to certain restrictions), or the President may himself prescribe, as being wise and beneficient provisions for
the government of the trade or industry in order to accomplish the broad purposes of rehabilitation, correction, and
expansion which are stated in the first section of title 1? 9
The act does not define 'fair competition.' 'Unfair competition,' as known to the common law, is a limited concept.
Primarily, and strictly, it relates to the palming off of one's goods as those of a rival trader. Good- year's Rubber
Manufacturing Co. v. Good-year Rubber Co., 128 U.S. 598 , [295 U.S. 495, 532] 604, 9 S.Ct. 166; Howe Scale
Co. v. Wyckoff, Seamans & Benedict, 198 U.S. 118, 140 , 25 S.Ct. 609; Hanover Star Milling Co. v. Metcalf, 240
U.S. 403, 413 , 36 S.Ct. 357. In recent years, its scope has been extended. It has been held to apply to
misappropriation as well as misrepresenation, to the selling of another's goods as one's own-to misappropriation of
what equitably belongs to a competitor. International News Service v. Associated Press,248 U.S. 215, 241 , 242 S.,
39 S.Ct. 68, 2 A.L.R. 293. Unfairness in competition has been predicated of acts which lie outside the ordinary
course of business and are tainted by fraud or coercion or conduct otherwise prohibited by law. 10 Id., 248 U.S.
315 , page 258, 39 S.Ct. 68, 2 A.L.R. 293. But it is evident that in its widest range, 'unfair competition,' as it has
been understood in the law, does not reach the objectives of the codes which are authorized by the National
Industrial Recovery Act. The codes may, indeed, cover conduct which existing law condemns, but they are not
limited to conduct of that sort. The government does not contend that the act contemplates such a limitation. It
would be opposed both to the declared purposes of the act and to its administrative construction.
The Federal Trade Commission Act [section 5 (15 USCA 45 11 introduced the expression 'unfair methods of
competition,' which were declared to be unlawful. That was an expression new in the law. Debate apparently
convinced the sponsors of the legislation that the words 'unfair competition,' in the light of their meaning at common
law, were too narrow. We have said that the substituted phrase has a broader meaning, that it does not admit of
precise definition; its scope being left to judicial determination as controversies arise. Federal Trade Commission v.
Raladam Co., 283 U.S. 643, 648 , 649 S., 51 S.Ct. 587, 79 A.L.R. 1191; Federal Trade Commission v. R. F.
Keppel, 291 U.S. 304 , 310-312, 54 S.Ct. 423. What are [295 U.S. 495, 533] 'UNFAIR METHODS OF
COMPETITION' ARE THUS to be determined in particular instances, upon evidence, in the light of particular
competitive conditions and of what is found to be a specific and substantial public interest. Federal Trade
Commission v. Beech-Nut Packing Co., 257 U.S. 441, 453 , 42 S.Ct. 150, 19 A.L.R. 882; Federal Trade
Commission v. Klesner, 280 U.S. 19, 27 , 28 S., 50 S.Ct. 1, 68 A.L.R. 838; Federal Trade Commission v. Raladam
Co., supra; Federal Trade Commission v. R. F. Keppel, supra; Federal Trade Commission v. Algoma Lumber
Co., 291 U.S. 67, 73 , 54 S.Ct. 315. To make this possible, Congress set up a special procedure. A commission, a
quasi judicial body, was created. Provision was made for formal complaint, for notice and hearing, for appropriate
findings of fact supported by adequate evidence, and for judicial review to give assurance that the action of the
commission is taken within its statutory authority. Federal Trade Commission v. Raladam Co., supra; Federal Trade
Commission v. Klesner, supra. 12
In providing for codes, the National Industrial Recovery Act dispenses with this administrative procedure and with
any administrative procedure of an analogous character. But the difference between the code plan of the Recovery
Act and the scheme of the Federal Trade Commission Act lies not only in procedure but in subject-[295 U.S. 495,
534] matter. We cannot regard the 'fair competition' of the codes as antithetical to the 'unfair methods of
competition' of the Federal Trade Commission Act. The 'fair competition' of the codes has a much broader range
and a new significance. The Recovery Act provides that it shall not be construed to impair the powers of the
Federal Trade Commission, but, when a code is approved, its provisions are to be the 'standards of fair
competition' for the trade or industry concerned, and any violation of such standards in any transaction in or
affecting interstate or foreign commerce is to be deemed 'an unfair method of competition' within the meaning of the
Federal Trade Commission Act. Section 3(b) of the act, 15 USCA 703(b).
For a statement of the authorized objectives and content of the 'codes of fair competition,' we are referred
repeatedly to the 'Declaration of Policy' in section 1 of title 1 of the Recovery Act (15 USCA 701). Thus the approval
of a code by the President is conditioned on his finding that it 'will tend to effectuate the policy of this title.' Section
3(a) of the act, 15 USCA 703(a). The President is authorized to impose such conditions 'for the protection of
consumers, competitors, employees, and others, and in furtherance of the public interest, and may provide such
exceptions to and exemptions from the provisions of such code, as the President in his discretion deems necessary
to effectuate the policy herein declared.' Id. The 'policy herein declared' is manifestly that set forth in section 1. That
declaration embraces a broad range of objectives. Among them we find the elimination of 'unfair competitive
practices.' But, even if this clause were to be taken to relate to practices which fall under the ban of existing law,
either common law or statute, it is still only one of the authorized aims described in section 1. It is there declared to
be 'the policy of Congress'- 'to remove obstructions to the free flow of interstate and foreign commerce which tend
to diminish the amount [295 U.S. 495, 535] thereof; and to provide for the general welfare by promoting the
organization of industry for the purpose of cooperative action among trade groups, to induce and maintain united
action of labor and management under adequate governmental sanctions and supervision, to eliminate unfair
competitive practices, to promote the fullest possible utilization of the present productive capacity of industries, to
avoid undue restriction of production (except as may be temporarily required), to increase the consumption of
industrial and agricultural products by increasing purchasing power, to reduce and relieve unemployment, to
improve standards of labor, and otherwise to rehabilitate industry and to conserve natural resources.' 13
Under section 3, whatever 'may tend to effectuate' these general purposes may be included in the 'codes of fair
competition.' We think the conclusion is inescapable that the authority sought to be conferred by section 3 was not
merely to deal with 'unfair competitive practices' which offend against existing law, and could be the subject of
judicial condemnation without further legislation, or to create administrative machinery for the application of
established principles of law to particular instances of violation. Rather, the purpose is clearly disclosed to authorize
new and controlling prohibitions through codes of laws which would embrace what the formulators would propose,
and what the President would approve or prescribe, as wise and beneficient measures for the government of trades
and industries in order to bring about their rehabilitation, correction, and development, according to the general
declaration of policy in section 1. Codes of laws of this sort are styled 'codes of fair competition.'
We find no real controversy upon this point and we must determine the validity of the code in question in this
aspect. As the government candidly says in its [295 U.S. 495, 536] brief: 'The words 'policy of this title' clearly refer
to the 'policy' which Congress declared in the section entitled 'Declaration of Policy'- Section 1. All of the policies
there set forth point toward a single goal- the rehabilitation of industry and the industrial recovery which
unquestionably was the major policy of Congress in adopting the National Industrial Recovery Act.' And that this is
the controlling purpose of the code now before us appears both from its repeated declarations to that effect and
from the scope of its requirements. It will be observed that its provisions as to the hours and wages of employees
and its 'general labor provisions' were placed in separate articles, and these were not included in the article on
'trade practice provisions' declaring what should be deemed to constitute 'unfair methods of competition.' The
Secretary of Agriculture thus stated the objectives of the Live Poultry Code in his report to the President, which was
recited in the executive order of approval:
'That said code will tend to effectuate the declared policy of title I of the National Industrial Recovery Act as set forth
in section 1 of said act in that the terms and provisions of such code tend to: (a) Remove obstructions to the free
flow of interstate and foreign commerce which tend to diminish the amount thereof: (b) to provide for the general
welfare by promoting the organization of industry for the purpose of cooperative action among trade groups; (c) to
eliminate unfair competitive practices; (d) to promote the fullest possible utilization of the present productive
capacity of industries; (e) to avoid undue restriction of production (except as may be temporarily required); (f) to
increase the consumption of industrial and agricultural products by increasing purchasing power; and (g) otherwise
to rehabilitate industry and to conserve natural resources.' [295 U.S. 495, 537] The government urges that the
codes will 'consist of rules of competition deemed fair for each industry by representative members of that industry-
by the persons most vitally concerned and most familiar with its problems.' Instances are cited in which Congress
has availed itself of such assistance; as, e.g., in the exercise of its authority over the public domain, with respect to
the recognition of local customs or rules of miners as to mining claims, 14 or, in matters of a more or less technical
nature, as in designating the standard height of drawbars. 15 But would it be seriously contended that Congress
could delegate its legislative authority to trade or industrial associations or groups so as to empower them to enact
the laws they deem to be wise and beneficent for the rehabilitation and expansion of their trade or industries?
Could trade or industrial associations or groups be constituted legislative bodies for that purpose because such
associations or groups are familiar with the problems of their enterprises? And could an effort of that sort be made
valid by such a preface of generalities as to permissible aims as we find in section 1 of title 1? The answer is
obvious. Such a delegation of legislative power is unknown to our law, and is utterly inconsistent with the
constitutional prerogatives and duties of Congress.
The question, then, turns upon the authority which section 3 of the Recovery Act vests in the President to approve
or prescribe. If the codes have standing as penal statutes, this must be due to the effect of the executive action. But
Congress cannot delegate legislative power to the President to exercise an unfettered discretion to make [295 U.S.
495, 538] whatever laws he thinks may be needed or advisable for the rehabilitation and expansion of trade or
industry. See Panama Refining Company v. Ryan, supra, and cases there reviewed.
Accordingly we turn to the Recovery Act to ascertain what limits have been set to the exercise of the President's
discretion: First, the President, as a condition of approval, is required to find that the trade or industrial associations
or groups which propose a code 'impose no inequitable restrictions on admission to membership' and are 'truly
representative.' That condition, however, relates only to the status of the initiators of the new laws and not to the
permissible scope of such laws. Second, the President is required to find that the code is not 'designed to promote
monopolies or to eliminate or oppress small enterprises and will not operate to discriminate against them.' And to
this is added a proviso that the code 'shall not permit monopolies or monopolistic practices.' But these restrictions
leave virtually untouched the field of policy envisaged by section 1, and, in that wide field of legislative possibilities,
the proponents of a code, refraining from monopolistic designs, may roam at will, and the President may approve or
disapprove their proposals as he may see fit. That is the precise effect of the further finding that the President is to
make-that the code 'will tend to effectuate the policy of this title.' While this is called a finding, it is really but a
statement of an opinion as to the general effect upon the promotion of trade or industry of a scheme of laws. These
are the only findings which Congress has made essential in order to put into operation a legislative code having the
aims described in the 'Declaration of Policy.'
Nor is the breadth of the President's discretion left to the necessary implications of this limited requirement as to his
findings. As already noted, the President in approving a code may impose his own conditions, adding to[295 U.S.
495, 539] or taking from what is proposed, as 'in his discretion' he thinks necessary 'to effectuate the policy'
declared by the act. Of course, he has no less liberty when he prescribes a code on his own motion or on
complaint, and he is free to prescribe one if a code has not been approved. The act provides for the creation by the
President of administrative agencies to assist him, but the action or reports of such agencies, or of his other
assistants-their recommendations and findings in relation to the making of codes-have no sanction beyond the will
of the President, who may accept, modify, or reject them as he pleases. Such recommendations or findings in no
way limit the authority which section 3 undertakes to vest in the President with no other conditions than those there
specified. And this authority relates to a host of different trades and industries, thus extending the President's
discretion to all the varieties of laws which he may deem to be beneficial in dealing with the vast array of
commercial and industrial activities throughout the country.
Such a sweeping delegation of legislative power finds no support in the decisions upon which the government
especially relies. By the Interstate Commerce Act (49 USCA 1 et seq.), Congress has itself provided a code of laws
regulating the activities of the common carriers subject to the act, in order to assure the performance of their
services upon just and reasonable terms, with adequate facilities and without unjust discrimination. Congress from
time to time has elaborated its requirements, as needs have been disclosed. To facilitate the application of the
standards prescribed by the act, Congress has provided an expert body. That administrative agency, in dealing with
particular cases, is required to act upon notice and hearing, and its orders must be supported by findings of fact
which in turn are sustained by evidence. Interstate Commerce Commission v. Louisville & Nashville Railroad
Company, 227 U.S. 88 , 33 S.Ct. 185; State of Florida v. United States, 282 U.S. 194 , 51 S.Ct. 119; United
States [295 U.S. 495, 540] v. Baltimore & Ohio Railroad Company, 293 U.S. 454 , 55 S.Ct. 268. When the
Commission is authorized to issue, for the construction, extension, or abandonment of lines, a certificate of 'public
convenience and necessity,' or to permit the acquisition by one carrier of the control of another, if that is found to be
'in the public interest,' we have pointed out that these provisions are not left without standards to guide
determination. The authority conferred has direct relation to the standards prescribed for the service of common
carriers, and can be exercised only upon findings, based upon evidence, with respect to particular conditions of
transportation. New York Central Securities Corporation v. United States, 287 U.S. 12, 24 , 25 S., 53 S.Ct. 45;
Texas & Pacific Railway Co. v. Gulf, Colorado & Santa Fe Railway Co., 270 U.S. 266, 273 , 46 S.Ct. 263;
Chesapeake & Ohio Railway Co. v. United States, 283 U.S. 35, 42 , 51 S.Ct. 337.
Similarly, we have held that the Radio Act of 192716 established standards to govern radio communications, and,
in view of the limited number of available broadcasting frequencies, Congress authorized allocation and licenses.
The Federal Radio Commission was created as the licensing authority, in order to secure a reasonable equality of
opportunity in radio transmission and reception. The authority of the Commission to grant licenses 'as public
convenience, interest or necessity requires' was limited by the nature of radio communications, and by the scope,
character, and quality of the services to be rendered and the relative advantages to be derived through distribution
of facilities. These standards established by Congress were to be enforced upon hearing and evidence by an
administrative body acting under statutory restrictions adapted to the particular activity. Federal Radio Commission
v. Nelson Brothers Bond & Mtg. Co., 289 U.S. 266 , 53 S.Ct. 627
[295 U.S. 495, 541] In Hampton, Jr. & Company v. United States, 276 U.S. 394 , 48 S.Ct. 348, 350 the question
related to the 'flexible tariff provision' of the Tariff Act of 1922.17 We held that Congress had described its plan 'to
secure by law the imposition of customs duties on articles of imported merchandise which should equal the
difference between the cost of producing in a foreign country the articles in question and laying them down for sale
in the United States, and the cost of producing and selling like or similar articles in the United States.' As the
differences in cost might vary from time to time, provision was made for the investigation and determination of
these differences by the executive branch so as to make 'the adjustments necessary to conform the duties to the
standard underlying that policy and plan.' Id. 276 U.S. 394 , pages 404, 405, 48 S.Ct. 348, 350. The Court found
the same principle to be applicable in fixing customs duties as that which permitted Congress to exercise its rate-
making power in interstate commerce, 'by declaring the rule which shall prevail in the legislative fixing of rates,' and
then remitting 'the fixing of such rates' in accordance with its provisions 'to a rate-making body.' Id. 276 U.S. 394 ,
page 409, 48 S.Ct. 348, 352. The Court fully recognized the limitations upon the delegation of legislative power.
Id. 276 U.S. 394 , pages 408-411, 48 S.Ct. 348.
To summarize and conclude upon this point: Section 3 of the Recovery Act (15 USCA 703 is without precedent. It
supplies no standards for any trade, industry, or activity. It does not undertake to prescribe rules of conduct to be
applied to particular states of fact determined by appropriate administrative procedure. Instead of prescribing rules
of conduct, it authorizes the making of codes to prescribe them. For that legislative undertaking, section 3 sets up
no standards, aside from the statement of the general aims of rehabilitation, correction, and expansion described in
section 1. In view of the scope of that broad declaration and of the [295 U.S. 495, 542] nature of the few
restrictions that are imposed, the discretion of the President in approving or prescribing codes, and thus enacting
laws for the government of trade and industry throughout the country, is virtually unfettered. We think that the code-
making authority thus conferred is an unconstitutional delegation of legislative power.
Third. The Question of the Application of the Provisions of the Live Poultry Code to Intrastate Transactions.-
Although the validity of the codes (apart from the question of delegation) rests upon the commerce clause of the
Constitution, section 3(a) of the act (15 USCA 703(a) is not in terms limited to interstate and foreign commerce.
From the generality of its terms, and from the argument of the government at the bar, it would appear that section
3(a) was designed to authorize codes without that limitation. But under section 3(f) of the act (15 USCA 73(f)
penalties are confined to violations of a code provision 'in any transaction in or affecting interstate or foreign
commerce.' This aspect of the case presents the question whether the particular provisions of the Live Poultry
Code, which the defendants were convicted for violating and for having conspired to violate, were within the
regulating power of Congress.
These provisions relate to the hours and wages of those employed by defendants in their slaughterhouses in
Brooklyn and to the sales there made to retail dealers and butchers.
Were these transactions 'in' interstate commerce? Much is made of the fact that almost all the poultry coming to
New York is sent there from other states. But the code provisions, as here applied, do not concern the
transportation of the poultry from other states to New York, or the transactions of the commission men or others to
whom it is consigned, or the sales made by such consignees to defendants. When defendants had made their
purchases, whether at the West Washington Market in New York City or at the railroad [295 U.S. 495,
543] terminals serving the city, or elsewhere, the poultry was trucked to their slaughterhouses in Brooklyn for local
disposition. The interstate transactions in relation to that poultry then ended. Defendants held the poultry at their
slaughterhouse markets for slaughter and local sale to retail dealers and butchers who in turn sold directly to
consumers. Neither the slaughtering nor the sales by defendants were transactions in interstate commerce. Brown
v. Houston, 114 U.S. 622, 632 , 633 S., 5 S.Ct. 1091; Public Utilities Commission v. Landon, 249 U.S. 236, 245 , 39
S.Ct. 268; Industrial Association v. United States, 268 U.S. 64, 78 , 79 S., 45 S.Ct. 403; Atlantic Coast Line R. Co.
v. Standard Oil Co., 275 U.S. 257, 267 , 48 S.Ct. 107.
The undisputed facts thus afford no warrant for the argument that the poultry handled by defendants at their
slaughterhouse markets was in a 'current' or 'flow' of interstate commerce, and was thus subject to congressional
regulation. The mere fact that there may be a constant flow of commodities into a state does not mean that the flow
continues after the property has arrived and has become commingled with the mass of property within the state and
is there held solely for local disposition and use. So far as the poultry here in question is concerned, the flow in
interstate commerce had ceased. The poultry had come to a permanent rest within the state. It was not held, used,
or sold by defendants in relation to any further transactions in interstate commerce and was not destined for
transportation to other states. Hence decisions which deal with a stream of interstate commerce-where goods come
to rest within a state temporarily and are later to go forward in interstate commerce-and with the regulations of
transactions involved in that practical continuity of movement, are not applicable here. See Swift & Company v.
United States, 196 U.S. 375, 387 , 388 S., 25 S.Ct. 276; Lemke v. Farmers' Grain Company, 258 U.S. 50, 55 , 42
S.Ct. 244; Stafford v. Wallace, 258 U.S. 495, 519 , 42 S.Ct. 397, 23 A.L.R. 229; Board of Trade of City of Chi- [295
U.S. 495, 544] cago v. Olsen, 262 U.S. 1, 35 , 43 S.Ct. 470; Tagg Bros. & Moorhead v. United States, 280 U.S.
420, 439 , 50 S.Ct. 220.
Did the defendants' transactions directly 'affect' interstate commerce so as to be subject to federal regulation? The
power of Congress extends, not only to the regulation of transactions which are part of interstate commerce, but to
the protection of that commerce from injury. It matters not that the injury may be due to the conduct of those
engaged in intrastate operations. Thus, Congress may protect the safety of those employed in interstate
transportation, 'no matter what may be the source of the dangers which threaten it.' Southern Railway Company v.
United States, 222 U.S. 20, 27 , 32 S.Ct. 2, 4. We said in Mondou v. New York, N.H. & H.R. Co. (Second
Employers' Liability Cases), 223 U.S. 1, 51 , 32 S.Ct. 169, 38 L.R.A.(N.S.) 44, that it is the 'effect upon interstate
commerce,' not 'the source of the injury,' which is 'the criterion of congressional power.' We have held that, in
dealing with common carriers engaged in both interstate and intrastate commerce, the dominant authority of
Congress necessarily embraces the right to control their intrastate operations in all matters having such a close and
substantial relation to interstate traffic that the control is essential or appropriate to secure the freedom of that traffic
from interference or unjust discrimination and to promote the efficiency of the interstate service. Houston, E. &
W.T.R. Co. v. U.S. (The Shreveport Case), 234 U.S. 342, 351 , 352 S., 34 S.Ct. 833; Railroad Commission of State
of Wisconsin v. Chicago, Burlington & Quincy R. Co., 257 U.S. 563, 588 , 42 S.Ct. 232, 22 A.L.R. 1086. And
combinations and conspiracies to restrain interstate commerce, or to monopolize any part of it, are none the less
within the reach of the Anti-Trust Act (15 USCA 1 et seq.) because the conspirators seek to attain their end by
means of intrastate activities. Coronado Coal Company v. United Mine Workers, 268 U.S. 295, 310 , 45 S.Ct. 551;
Bedford Cut Stone Company v. Journeyman Stone Cutters' Association, 274 U.S. 37, 46 , 47 S.Ct. 522, 54 A.L.R.
791.
We recently had occasion, in Local 167 V. United States, 291 U.S. 293 , 54 S.Ct. 396, to apply this principle in
connection with [295 U.S. 495, 545] the live poultry industry. That was a suit to enjoin a conspiracy to restrain and
monopolize interstate commerce in violation of the Anti-Trust Act. It was shown that marketmen, teamsters, and
slaughterers (shochtim) had conspired to burden the free movement of live poultry into the metropolitan area in and
about New York City. Marketmen had organized an association, had allocated retailers among themselves, and
had agreed to increase prices. To accomplish their objects, large amounts of money were raised by levies upon
poultry sold, men were hired to obstruct the business of dealers who resisted, wholesalers and retailers were spied
upon, and by violence and other forms of intimidation were prevented from freely purchasing live poultry.
Teamsters refused to handle poultry for recalcitrant marketmen, and members of the shochtim union refused to
slaughter. In view of the proof of that conspiracy, we said that it was unnecessary to decide when interstate
commerce ended and when intrastate commerce began. We found that the proved interference by the conspirators
'with the unloading, the transportation, the sales by marketmen to retailers, the prices charged, and the amount of
profits exacted' operated 'substantially and directly to restrain and burden the untrammelled shipment and
movement of the poultry,' while unquestionably it was in interstate commerce. The intrastate acts of the
conspirators were included in the injunction because that was found to be necessary for the protection of interstate
commerce against the attempted and illegal restraint. Id. 291 U.S. 293 , pp. 297, 299, 300, 54 S.Ct. 396, 398.
The instant case is not of that sort. This is not a prosecution for a conspiracy to restrain or monopolize interstate
commerce in violation of the Anti-Trust Act. Defendants have been convicted, not upon direct charges of injury to
interstate commerce or of interference with persons engaged in that commerce, but of violations of certain
provisions of the Live Poultry Code and of con- [295 U.S. 495, 546] spiracy to commit these violations. Interstate
commerce is brought in only upon the charge that violations of these provisions-as to hours and wages of
employees and local sales-'affected' interstate commerce.
In determining how far the federal government may go in controlling intrastate transactions upon the ground that
they 'affect' interstate commerce, there is a necessary and well-established distinction between direct and indirect
effects. The precise line can be drawn only as individual cases arise, but the distinction is clear in principle. Direct
effects are illustrated by the railroad cases we have cited, as, e.g., the effect of failure to use prescribed safety
appliances on railroads which are the highways of both interstate and intrastate commerce, injury to an employee
engaged in interstate transportation by the negligence of an employee engaged in an intrastate movement, the
fixing of rates for intrastate transportation which unjustly discriminate against interstate commerce. But where the
effect of intrastate transactions upon interstate commerce is merely indirect, such transactions remain within the
domain of state power. If the commerce clause were construed to reach all enterprises and transactions which
could be said to have an indirect effect upon interstate commerce, the federal authority would embrace practically
all the activities of the people, and the authority of the state over its domestic concerns would exist only by
sufferance of the federal government. Indeed, on such a theory, even the development of the state's commercial
facilities would be subject to federal control. As we said in Simpson v. Shepard (Minnesota Rate Case), 230 U.S.
352, 410 , 33 S. Ct. 729, 745, 48 L.R.A. (N.S.) 1151, Ann. Cas. 1916A, 18: 'In the intimacy of commercial relations,
much that is done in the superintendence of local matters may have an indirect bearing upon interstate commerce.
The development of local resources and the extension of local facilities may have a very important effect upon
communities less favored, and to an appreciable degree [295 U.S. 495, 547] alter the course of trade. The
freedom of local trade may stimulate interstate commerce, while restrictive measures within the police power of the
state, enacted exclusively with respect to internal business, as distinguished from interstate traffic, may in their
reflex or indirect influence diminish the latter and reduce the volume of articles transported into or out of the state.'
See, also, Kidd v. Pearson, 128 U.S. 1, 21 , 9 S.Ct. 6; Heisler v. Thomas Colliery Co., 260 U.S. 245, 259 , 260 S.,
43 S.Ct. 83.
The distinction between direct and indirect effects has been clearly recognized in the application of the Anti-Trust
Act. Where a combination or conspiracy is formed, with the intent to restrain interstate commerce or to monopolize
any part of it, the violation of the statute is clear. Coronado Coal Company v. United Mine Workers, 268 U.S. 295,
310 , 45 S.Ct. 551. But, where that intent is absent, and the objectives are limited to intrastate activities, the fact
that there may be an indirect effect upon interstate commerce does not subject the parties to the federal statute,
notwithstanding its broad provisions. This principle has frequently been applied in litigation growing out of labor
disputes. United Mine Workers v. Coronado Coal Company, 259 U.S. 344, 410, 411 S., 42 S. Ct. 570, 27 A.L.R.
762; United Leather Workers' International Union v. Herkert, 265 U.S. 457 , 464-467, 44 S.Ct. 623, 33 A.L.R. 566;
Industrial Association v. United States, 268 U.S. 64, 82 , 45 S.Ct. 403; Levering & Garrigues v. Morrin, 289 U.S.
103, 107 , 108 S., 53 S.Ct. 549, 551. In the case last cited we quoted with approval the rule that had been stated
and applied in Industrial Association v. United States, supra, after review of the decisions, as follows: 'The alleged
conspiracy, and the acts here complained of, spent their intended and direct force upon a local situation-for building
is as essentially local as mining, manufacturing or growing crops-and if, by resulting diminution of the commercial
demand, interstate trade was curtailed either generally or in specific instances that was a fortuitous consequence
so remote and indirect [295 U.S. 495, 548] as plainly to cause it to fall outside the reach of the Sherman Act (15
USCA 1-7, 15 note).'
While these decisions related to the application of the Federal statute, and not to its constitutional validity, the
distinction between direct and indirect effects of intrastate transactions upon interstate commerce must be
recognized as a fundamental one, essential to the maintenance of our constitutional system. Otherwise, as we
have said, there would be virtually no limit to the federal power, and for all practical purposes we should have a
completely centralized government. We must consider the provisions here in question in the light of this distinction.
The question of chief importance relates to the provisions of the code as to the hours and wages of those employed
in defendants' slaughterhouse markets. It is plain that these requirements are imposed in order to govern the
details of defendants' management of their local business. The persons employed in slaughtering and selling in
local trade are not employed in interstate commerce. Their hours and wages have no direct relation to interstate
commerce. The question of how many hours these employees should work and what they should be paid differs in
no essential respect from similar questions in other local businesses which handle commodities brought into a state
and there dealt in as a part of its internal commerce. This appears from an examination of the considerations urged
by the government with respect to conditions in the poultry trade. Thus, the government argues that hours and
wages affect prices; that slaughterhouse men sell at a small margin above operating costs; that labor represents 50
to 60 per cent. of these costs; that a slaughterhouse operator paying lower wages or reducing his cost by exacting
long hours of work translates his saving into lower prices; that this results in demands for a cheaper grade of
goods: and that the cutting [295 U.S. 495, 549] of prices brings about a demoralization of the price structure.
Similar conditions may be adduced in relation to other businesses. The argument of the government proves too
much. If the federal government may determine the wages and hours of employees in the internal commerce of a
state, because of their relation to cost and prices and their indirect effect upon interstate commerce, it would seem
that a similar control might be exerted over other elements of cost, also affecting prices, such as the number of
employees, rents, advertising, methods of doing business, etc. All the processes of production and distribution that
enter into cost could likewise be controlled. If the cost of doing an intrastate business is in itself the permitted object
of federal control, the extent of the regulation of cost would be a question of discretion and not of power.
The government also makes the point that efforts to enact state legislation establishing high labor standards have
been impeded by the belief that, unless similar action is taken generally, commerce will be diverted from the states
adopting such standards, and that this fear of diversion has led to demands for federal legislation on the subject of
wages and hours. The apparent implication is that the federal authority under the commerce clause should be
deemed to extend to the establishment of rules to govern wages and hours in intrastate trade and industry
generally throughout the country, thus overriding the authority of the states to deal with domestic problems arising
from labor conditions in their internal commerce.
It is not the province of the Court to consider the economic advantages or disadvantages of such a centralized
system. It is sufficient to say that the Federal Constitution does not provide for it. Our growth and development have
called for wide use of the commerce power of the federal government in its control over the expanded activities of
interstate commerce and in protecting that [295 U.S. 495, 550] commerce from burdens, interferences, and
conspiracies to restrain and monopolize it. But the authority of the federal government may not be pushed to such
an extreme as to destroy the distinction, which the commerce clause itself establishes, between commerce 'among
the several States' and the internal concerns of a state. The same answer must be made to the contention that is
based upon the serious economic situation which led to the passage of the Recovery Act-the fall in prices, the
decline in wages and employment, and the curtailment of the market for commodities. Stress is laid upon the great
importance of maintaining wage distributions which would provide the necessary stimulus in starting 'the cumulative
forces making for expanding commercial activity.' Without in any way disparaging this motive, it is enough to say
that the recuperative efforts of the federal government must be made in a manner consistent with the authority
granted by the Constitution.
We are of the opinion that the attempt through the provisions of the code to fix the hours and wages of employees
of defendants in their intrastate business was not a valid exercise of federal power.
The other violations for which defendants were convicted related to the making of local sales. Ten counts, for
violation of the provision as to 'straight killing,' were for permitting customers to make 'selections of individual
chickens taken from particular coops and half coops.' Whether or not this practice is good or bad for the local trade,
its effect, if any, upon interstate commerce was only indirect. The same may be said of violations of the code by
intrastate transactions consisting of the sale 'of an unfit chicken' and of sales which were not in accord with the
ordinances of the city of New York. The requirement of reports as to prices and volumes of defendants' sales was
incident to the effort to control their intrastate business. [295 U.S. 495, 551] In view of these conclusions, we find it
unnecessary to discuss other questions which have been raised as to the validity of certain provisions of the code
under the due process clause of the Fifth Amendment.
On both the grounds we have discussed, the attempted delegation of legislative power and the attempted
regulation of intrastate transactions which affect interstate commerce only indirectly, we hold the code provisions
here in question to be invalid and that the judgment of conviction must be reversed.
No. 854
-reversed.
No. 864-affirmed.
Mr. Justice CARDOZO (concurring).
The delegated power of legislation which has found expression in this code is not canalized within banks that keep
it from overflowing. It is unconfined and vagrant, if I may borrow my own words in an earlier opinion. Panama
Refining Co. v. Ryan, 293 U.S. 388, 440 , 55 S.Ct. 241.
This court has held that delegation may be unlawful, though the act to be performed is definite and single, if the
necessity, time, and occasion of performance have been left in the end to the discretion of the delegate. Panama
Refining Co. v. Ryan, supra. I thought that ruling went too far. I pointed out in an opinion that there had been 'no
grant to the Executive of any roving commission to inquire into evils and then, upon discovering them, do anything
he pleases.' 293 U.S. 388 , at page 435, 55 S. Ct. 241, 254. Choice, though within limits, had been given him 'as to
the occasion, but none whatever as to the means.' Id. Here, in the case before us, is an attempted delegation not
confined to any single act nor to any class or group of acts identified or described by reference to a standard. Here
in effect is a roving commission to inquire into evils and upon discovery correct them. [295 U.S. 495, 552] I have
said that there is no standard, definite or even approximate, to which legislation must conform. Let me make my
meaning more precise. If codes of fair competition are codes eliminating 'unfair' methods of competition ascertained
upon inquiry to prevail in one industry or another, there is no unlawful delegation of legislative functions when the
President is directed to inquire into such practices and denounce them when discovered. For many years a like
power has been committed to the Federal Trade Commission with the approval of this court in a long series of
decisions. Cf. Federal Trade Commission v. R.F. Keppel & Bro., 291 U.S. 304, 312 , 54 S.Ct. 423; Federal Trade
Commission v. Raladam Co., 283 U.S. 643, 648 , 51 S.Ct. 587, 79 A.L.R. 1191; Federal Trade Commission v.
Gratz, 253 U.S. 421 , 40 S.Ct. 572. Delegation in such circumstances is born of the necessities of the occasion.
The industries of the country are too many and diverse to make it possible for Congress, in respect of matters such
as these, to legislate directly with adequate appreciation of varying conditions. Nor is the substance of the power
changed because the President may act at the instance of trade or industrial associations having special
knowledge of the facts. Their function is strictly advisory; it is the imprimatur of the President that begets the quality
of law. Doty v. Love, 295 U.S. 64 , 55 S.Ct. 558, 79 L.Ed. --. When the task that is set before one is that of cleaning
house, it is prudent as well as usual to take counsel of the dwellers.
But there is another conception of codes of fair competition, their significance and function, which leads to very
different consequences, though it is one that is struggling now for recognition and acceptance. By this other
conception a code is not to be restricted to the elimination of business practices that would be characterized by
general acceptation as oppressive or unfair. It is to include whatever ordinances may be desirable or helpful for the
well-being or prosperity of the industry [295 U.S. 495, 553] affected. In that view, the function of its adoption is not
merely negative, but positive; the planning of improvements as well as the extirpation of abuses. What is fair, as
thus conceived, is not something to be contrasted with what is unfair or fraudulent or tricky. The extension becomes
as wide as the field of industrial regulation. If that conception shall prevail, anything that Congress may do within
the limits of the commerce clause for the betterment of business may be done by the President upon the
recommendation of a trade association by calling it a code. This is delegation running riot. No such plenitude of
power is susceptible of transfer. The statute, however, aims at nothing less, as one can learn both from its terms
and from the administrative practice under it. Nothing less is aimed at by the code now submitted to our scrutiny.
The code does not confine itself to the suppression of methods of competition that would be classified as unfair
according to accepted business standards or accepted norms of ethics. It sets up a comprehensive body of rules to
promote the welfare of the industry, if not the welfare of the nation, without reference to standards, ethical or
commercial, that could be known or predicted in advance of its adoption. One of the new rules, the source of ten
counts in the indictment, is aimed at an established practice, not unethical or oppressive, the practice of selective
buying. Many others could be instanced as open to the same objection if the sections of the code were to be
examined one by one. The process of dissection will not be traced in all its details. Enough at this time to state what
it reveals. Even if the statute itself had fixed the meaning of fair competition by way of contrast with practices that
are oppressive or unfair, the code outruns the bounds of the authority conferred. What is excessive is not sporadic
or superficial. It is deep- seated and per- [295 U.S. 495, 554] vasive. The licit and illicit sections are so combined
and welded as to be incapable of severance without destructive mutilation.
But there is another objection, far-reaching and incurable, aside from any defect of unlawful delegation.
If this code had been adopted by Congress itself, and not by the President on the advice of an industrial
association, it would even then be void, unless authority to adopt it is included in the grant of power 'to regulare
commerce with foreign nations, and among the several States.' United States Constitution, art. 1, 8, cl. 3.
I find no authority in that grant for the regulation of wages and hours of labor in the intrastate transactions that make
up the defendants' business. As to this feature of the case, little can be added to the opinion of the court. There is a
view of causation that would obliterate the distinction between what is national and what is local in the activities of
commerce. Motion at the outer rim is communicated perceptibly, though minutely, to recording instruments at the
center. A society such as ours 'is an elastic medium which transmits all tremors throughout its territory; the only
question is of their size.' Per Learned Hand, J., in the court below. The law is not indifferent to considerations of
degree. Activities local in their immediacy do not become interstate and national because of distant repercussions.
What is near and what is distant may at times be uncertain. Cf. Board of Trade of City of Chicago v. Olsen, 262
U.S. 1 , 43 S.Ct. 470. There is no penumbra of uncertainty obscuring judgment here. To find immediacy or
directness here is to find it almost everywhere. If centripetal forces are to be isolated to the exclusion of the forces
that oppose and counteract them, there will be an end to our federal system.
To take from this code the provisions as to wages and the hours of labor is to destroy it altogether. If a trade or an
industry is so predominantly local as to be exempt [295 U.S. 495, 555] from regulation by the Congress in respect
of matters such as these, there can be no 'code' for it at all. This is clear from the provisions of section 7(a) of the
act (15 USCA 707(a), with its explicit disclosure of the statutory scheme. Wages and the hours of labor are
essential features of the plan, its very bone and sinew. There is no opportunity in such circumstances for the
severance of the infected parts in the hope of saving the remainder. A code collapses utterly with bone and sinew
gone.
I am authorized to state that Mr. Justice STONE joins in this opinion.
THE UNITED STATES vs. ANG TANG HO
G.R. No. 17122 February 27, 1922

At its special session of 1919, the Philippine Legislature passed Act No. 2868, entitled "An Act penalizing the
monopoly and holding of, and speculation in, palay, rice, and corn under extraordinary circumstances, regulating
the distribution and sale thereof, and authorizing the Governor-General, with the consent of the Council of State, to
issue the necessary rules and regulations therefor, and making an appropriation for this purpose," the material
provisions of which are as follows:
Section 1. The Governor-General is hereby authorized, whenever, for any cause, conditions arise resulting
in an extraordinary rise in the price of palay, rice or corn, to issue and promulgate, with the consent of the
Council of State, temporary rules and emergency measures for carrying out the purpose of this Act, to wit:
(a) To prevent the monopoly and hoarding of, and speculation in, palay, rice or corn.
(b) To establish and maintain a government control of the distribution or sale of the commodities referred to
or have such distribution or sale made by the Government itself.
(c) To fix, from time to time the quantities of palay rice, or corn that a company or individual may acquire,
and the maximum sale price that the industrial or merchant may demand.
(d) . . .
SEC. 2. It shall be unlawful to destroy, limit, prevent or in any other manner obstruct the production or
milling of palay, rice or corn for the purpose of raising the prices thereof; to corner or hoard said products
as defined in section three of this Act; . . .
Section 3 defines what shall constitute a monopoly or hoarding of palay, rice or corn within the meaning of this Act,
but does not specify the price of rice or define any basic for fixing the price.
SEC. 4. The violations of any of the provisions of this Act or of the regulations, orders and decrees
promulgated in accordance therewith shall be punished by a fine of not more than five thousands pesos, or
by imprisonment for not more than two years, or both, in the discretion of the court: Provided, That in the
case of companies or corporations the manager or administrator shall be criminally liable.
SEC. 7. At any time that the Governor-General, with the consent of the Council of State, shall consider that
the public interest requires the application of the provisions of this Act, he shall so declare by proclamation,
and any provisions of other laws inconsistent herewith shall from then on be temporarily suspended.
Upon the cessation of the reasons for which such proclamation was issued, the Governor-General, with the
consent of the Council of State, shall declare the application of this Act to have likewise terminated, and all
laws temporarily suspended by virtue of the same shall again take effect, but such termination shall not
prevent the prosecution of any proceedings or cause begun prior to such termination, nor the filing of any
proceedings for an offense committed during the period covered by the Governor-General's proclamation.
August 1, 1919, the Governor-General issued a proclamation fixing the price at which rice should be sold.
August 8, 1919, a complaint was filed against the defendant, Ang Tang Ho, charging him with the sale of rice at an
excessive price as follows:
The undersigned accuses Ang Tang Ho of a violation of Executive Order No. 53 of the Governor-General
of the Philippines, dated the 1st of August, 1919, in relation with the provisions of sections 1, 2 and 4 of Act
No. 2868, committed as follows:
That on or about the 6th day of August, 1919, in the city of Manila, Philippine Islands, the said Ang Tang
Ho, voluntarily, illegally and criminally sold to Pedro Trinidad, one ganta of rice at the price of eighty
centavos (P.80), which is a price greater than that fixed by Executive Order No. 53 of the Governor-
General of the Philippines, dated the 1st of August, 1919, under the authority of section 1 of Act No. 2868.
Contrary to law.
Upon this charge, he was tried, found guilty and sentenced to five months' imprisonment and to pay a fine of P500,
from which he appealed to this court, claiming that the lower court erred in finding Executive Order No. 53 of 1919,
to be of any force and effect, in finding the accused guilty of the offense charged, and in imposing the sentence.
The official records show that the Act was to take effect on its approval; that it was approved July 30, 1919; that the
Governor-General issued his proclamation on the 1st of August, 1919; and that the law was first published on the
13th of August, 1919; and that the proclamation itself was first published on the 20th of August, 1919.
The question here involves an analysis and construction of Act No. 2868, in so far as it authorizes the Governor-
General to fix the price at which rice should be sold. It will be noted that section 1 authorizes the Governor-General,
with the consent of the Council of State, for any cause resulting in an extraordinary rise in the price of palay, rice or
corn, to issue and promulgate temporary rules and emergency measures for carrying out the purposes of the Act.
By its very terms, the promulgation of temporary rules and emergency measures is left to the discretion of the
Governor-General. The Legislature does not undertake to specify or define under what conditions or for what
reasons the Governor-General shall issue the proclamation, but says that it may be issued "for any cause," and
leaves the question as to what is "any cause" to the discretion of the Governor-General. The Act also says: "For
any cause, conditions arise resulting in an extraordinary rise in the price of palay, rice or corn." The Legislature
does not specify or define what is "an extraordinary rise." That is also left to the discretion of the Governor-General.
The Act also says that the Governor-General, "with the consent of the Council of State," is authorized to issue and
promulgate "temporary rules and emergency measures for carrying out the purposes of this Act." It does not specify
or define what is a temporary rule or an emergency measure, or how long such temporary rules or emergency
measures shall remain in force and effect, or when they shall take effect. That is to say, the Legislature itself has
not in any manner specified or defined any basis for the order, but has left it to the sole judgement and discretion of
the Governor-General to say what is or what is not "a cause," and what is or what is not "an extraordinary rise in the
price of rice," and as to what is a temporary rule or an emergency measure for the carrying out the purposes of the
Act. Under this state of facts, if the law is valid and the Governor-General issues a proclamation fixing the minimum
price at which rice should be sold, any dealer who, with or without notice, sells rice at a higher price, is a criminal.
There may not have been any cause, and the price may not have been extraordinary, and there may not have been
an emergency, but, if the Governor-General found the existence of such facts and issued a proclamation, and rice
is sold at any higher price, the seller commits a crime.
By the organic law of the Philippine Islands and the Constitution of the United States all powers are vested in the
Legislative, Executive and Judiciary. It is the duty of the Legislature to make the law; of the Executive to execute
the law; and of the Judiciary to construe the law. The Legislature has no authority to execute or construe the law,
the Executive has no authority to make or construe the law, and the Judiciary has no power to make or execute the
law. Subject to the Constitution only, the power of each branch is supreme within its own jurisdiction, and it is for
the Judiciary only to say when any Act of the Legislature is or is not constitutional. Assuming, without deciding, that
the Legislature itself has the power to fix the price at which rice is to be sold, can it delegate that power to another,
and, if so, was that power legally delegated by Act No. 2868? In other words, does the Act delegate legislative
power to the Governor-General? By the Organic Law, all Legislative power is vested in the Legislature, and the
power conferred upon the Legislature to make laws cannot be delegated to the Governor-General, or any one else.
The Legislature cannot delegate the legislative power to enact any law. If Act no 2868 is a law unto itself and within
itself, and it does nothing more than to authorize the Governor-General to make rules and regulations to carry the
law into effect, then the Legislature itself created the law. There is no delegation of power and it is valid. On the
other hand, if the Act within itself does not define crime, and is not a law, and some legislative act remains to be
done to make it a law or a crime, the doing of which is vested in the Governor-General, then the Act is a delegation
of legislative power, is unconstitutional and void.
The Supreme Court of the United States in what is known as the Granger Cases (94 U.S., 183-187; 24 L. ed., 94),
first laid down the rule:
Railroad companies are engaged in a public employment affecting the public interest and, under the
decision in Munn vs. Ill., ante, 77, are subject to legislative control as to their rates of fare and freight unless
protected by their charters.
The Illinois statute of Mar. 23, 1874, to establish reasonable maximum rates of charges for the
transportation of freights and passengers on the different railroads of the State is not void as being
repugnant to the Constitution of the United States or to that of the State.
It was there for the first time held in substance that a railroad was a public utility, and that, being a public utility, the
State had power to establish reasonable maximum freight and passenger rates. This was followed by the State of
Minnesota in enacting a similar law, providing for, and empowering, a railroad commission to hear and determine
what was a just and reasonable rate. The constitutionality of this law was attacked and upheld by the Supreme
Court of Minnesota in a learned and exhaustive opinion by Justice Mitchell, in the case of State vs. Chicago,
Milwaukee & St. Paul ry. Co. (38 Minn., 281), in which the court held:
Regulations of railway tariffs — Conclusiveness of commission's tariffs. — Under Laws 1887, c. 10, sec. 8,
the determination of the railroad and warehouse commission as to what are equal and reasonable fares
and rates for the transportation of persons and property by a railway company is conclusive, and, in
 proceedings by mandamus to compel compliance with the tariff of rates recommended and published by
them, no issue can be raised or inquiry had on that question.
Same — constitution — Delegation of power to commission. — The authority thus given to the commission
to determine, in the exercise of their discretion and judgement, what are equal and reasonable rates, is not
a delegation of legislative power.
It will be noted that the law creating the railroad commission expressly provides —
That all charges by any common carrier for the transportation of passengers and property shall be equal
and reasonable.
With that as a basis for the law, power is then given to the railroad commission to investigate all the facts, to hear
and determine what is a just and reasonable rate. Even then that law does not make the violation of the order of the
commission a crime. The only remedy is a civil proceeding. It was there held —
That the legislative itself has the power to regulate railroad charges is now too well settled to require either
argument or citation of authority.
The difference between the power to say what the law shall be, and the power to adopt rules and
regulations, or to investigate and determine the facts, in order to carry into effect a law already passed, is
apparent. The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and the conferring an authority or discretion to be exercised
under and in pursuance of the law.
The legislature enacts that all freights rates and passenger fares should be just and reasonable. It had the
undoubted power to fix these rates at whatever it deemed equal and reasonable.
They have not delegated to the commission any authority or discretion as to what the law shall be, — which
would not be allowable, — but have merely conferred upon it an authority and discretion, to be exercised in
the execution of the law, and under and in pursuance of it, which is entirely permissible. The legislature
itself has passed upon the expediency of the law, and what is shall be. The commission is intrusted with no
authority or discretion upon these questions. It can neither make nor unmake a single provision of law. It is
merely charged with the administration of the law, and with no other power.
The delegation of legislative power was before the Supreme Court of Wisconsin in Dowling vs. Lancoshire Ins. Co.
(92 Wis., 63). The opinion says:
"The true distinction is between the delegation of power to make the law, which necessarily involves a
discretion as to what it shall be, and conferring authority or discretion as to its execution, to be exercised
under and in pursuance of the law. The first cannot be done; to the latter no valid objection can be made."
The act, in our judgment, wholly fails to provide definitely and clearly what the standard policy should contain, so
that it could be put in use as a uniform policy required to take the place of all others, without the determination of
the insurance commissioner in respect to maters involving the exercise of a legislative discretion that could not be
delegated, and without which the act could not possibly be put in use as an act in confirmity to which all fire
insurance policies were required to be issued.
The result of all the cases on this subject is that a law must be complete, in all its terms and provisions, when it
leaves the legislative branch of the government, and nothing must be left to the judgement of the electors or other
appointee or delegate of the legislature, so that, in form and substance, it is a law in all its details in presenti, but
which may be left to take effect in futuro, if necessary, upon the ascertainment of any prescribed fact or event.
The delegation of legislative power was before the Supreme Court in United States vs. Grimaud (220 U.S., 506; 55
L. ed., 563), where it was held that the rules and regulations of the Secretary of Agriculture as to a trespass on
government land in a forest reserve were valid constitutional. The Act there provided that the Secretary of
Agriculture ". . . may make such rules and regulations and establish such service as will insure the object of such
reservations; namely, to regulate their occupancy and use, and to preserve the forests thereon from
destruction; and any violation of the provisions of this act or such rules and regulations shall be punished, . . ."
The brief of the United States Solicitor-General says:
In refusing permits to use a forest reservation for stock grazing, except upon stated terms or in stated
ways, the Secretary of Agriculture merely assert and enforces the proprietary right of the United States
over land which it owns. The regulation of the Secretary, therefore, is not an exercise of legislative, or even
of administrative, power; but is an ordinary and legitimate refusal of the landowner's authorized agent to
 allow person having no right in the land to use it as they will. The right of proprietary control is altogether
different from governmental authority.
The opinion says:
From the beginning of the government, various acts have been passed conferring upon executive officers
power to make rules and regulations, — not for the government of their departments, but for administering
the laws which did govern. None of these statutes could confer legislative power. But when Congress had
legislated power. But when Congress had legislated and indicated its will, it could give to those who were to
act under such general provisions "power to fill up the details" by the establishment of administrative rules
and regulations, the violation of which could be punished by fine or imprisonment fixed by Congress, or by
penalties fixed by Congress, or measured by the injury done.
That "Congress cannot delegate legislative power is a principle universally recognized as vital to the
integrity and maintenance of the system of government ordained by the Constitution."
If, after the passage of the act and the promulgation of the rule, the defendants drove and grazed their
sheep upon the reserve, in violation of the regulations, they were making an unlawful use of the
government's property. In doing so they thereby made themselves liable to the penalty imposed by
Congress.
The subjects as to which the Secretary can regulate are defined. The lands are set apart as a forest reserve. He is
required to make provisions to protect them from depredations and from harmful uses. He is authorized 'to regulate
the occupancy and use and to preserve the forests from destruction.' A violation of reasonable rules regulating the
use and occupancy of the property is made a crime, not by the Secretary, but by Congress."
The above are leading cases in the United States on the question of delegating legislative power. It will be noted
that in the "Granger Cases," it was held that a railroad company was a public corporation, and that a railroad was a
public utility, and that, for such reasons, the legislature had the power to fix and determine just and reasonable
rates for freight and passengers.
The Minnesota case held that, so long as the rates were just and reasonable, the legislature could delegate the
power to ascertain the facts and determine from the facts what were just and reasonable rates,. and that in vesting
the commission with such power was not a delegation of legislative power.
The Wisconsin case was a civil action founded upon a "Wisconsin standard policy of fire insurance," and the court
held that "the act, . . . wholly fails to provide definitely and clearly what the standard policy should contain, so that it
could be put in use as a uniform policy required to take the place of all others, without the determination of the
insurance commissioner in respect to matters involving the exercise of a legislative discretion that could not be
delegated."
The case of the United States Supreme Court, supra dealt with rules and regulations which were promulgated by
the Secretary of Agriculture for Government land in the forest reserve.
These decisions hold that the legislative only can enact a law, and that it cannot delegate it legislative authority.
The line of cleavage between what is and what is not a delegation of legislative power is pointed out and clearly
defined. As the Supreme Court of Wisconsin says:
That no part of the legislative power can be delegated by the legislature to any other department of the
government, executive or judicial, is a fundamental principle in constitutional law, essential to the integrity
and maintenance of the system of government established by the constitution.
Where an act is clothed with all the forms of law, and is complete in and of itself, it may be provided that it
shall become operative only upon some certain act or event, or, in like manner, that its operation shall be
suspended.
The legislature cannot delegate its power to make a law, but it can make a law to delegate a power to
determine some fact or state of things upon which the law makes, or intends to make, its own action to
depend.
The Village of Little Chute enacted an ordinance which provides:
All saloons in said village shall be closed at 11 o'clock P.M. each day and remain closed until 5 o'clock on
the following morning, unless by special permission of the president.
Construing it in 136 Wis., 526; 128 A. S. R., 1100,1 the Supreme Court of that State says:
 We regard the ordinance as void for two reasons; First, because it attempts to confer arbitrary power upon
an executive officer, and allows him, in executing the ordinance, to make unjust and groundless
discriminations among persons similarly situated; second, because the power to regulate saloons is a law-
making power vested in the village board, which cannot be delegated. A legislative body cannot delegate to
a mere administrative officer power to make a law, but it can make a law with provisions that it shall go into
effect or be suspended in its operations upon the ascertainment of a fact or state of facts by an
administrative officer or board. In the present case the ordinance by its terms gives power to the president
to decide arbitrary, and in the exercise of his own discretion, when a saloon shall close. This is an attempt
to vest legislative discretion in him, and cannot be sustained.
The legal principle involved there is squarely in point here.
It must be conceded that, after the passage of act No. 2868, and before any rules and regulations were
promulgated by the Governor-General, a dealer in rice could sell it at any price, even at a peso per "ganta," and
that he would not commit a crime, because there would be no law fixing the price of rice, and the sale of it at any
price would not be a crime. That is to say, in the absence of a proclamation, it was not a crime to sell rice at any
price. Hence, it must follow that, if the defendant committed a crime, it was because the Governor-General issued
the proclamation. There was no act of the Legislature making it a crime to sell rice at any price, and without the
proclamation, the sale of it at any price was to a crime.
The Executive order2 provides:
(5) The maximum selling price of palay, rice or corn is hereby fixed, for the time being as follows:
In Manila —
Palay at P6.75 per sack of 57½ kilos, or 29 centavos per ganta.
Rice at P15 per sack of 57½ kilos, or 63 centavos per ganta.
Corn at P8 per sack of 57½ kilos, or 34 centavos per ganta.
In the provinces producing palay, rice and corn, the maximum price shall be the Manila price less the cost
of transportation from the source of supply and necessary handling expenses to the place of sale, to be
determined by the provincial treasurers or their deputies.
In provinces, obtaining their supplies from Manila or other producing provinces, the maximum price shall be
the authorized price at the place of supply or the Manila price as the case may be, plus the transportation
cost, from the place of supply and the necessary handling expenses, to the place of sale, to be determined
by the provincial treasurers or their deputies.
(6) Provincial treasurers and their deputies are hereby directed to communicate with, and execute all
instructions emanating from the Director of Commerce and Industry, for the most effective and proper
enforcement of the above regulations in their respective localities.
The law says that the Governor-General may fix "the maximum sale price that the industrial or merchant may
demand." The law is a general law and not a local or special law.
The proclamation undertakes to fix one price for rice in Manila and other and different prices in other and different
provinces in the Philippine Islands, and delegates the power to determine the other and different prices to provincial
treasurers and their deputies. Here, then, you would have a delegation of legislative power to the Governor-
General, and a delegation by him of that power to provincial treasurers and their deputies, who "are hereby directed
to communicate with, and execute all instructions emanating from the Director of Commerce and Industry, for the
most effective and proper enforcement of the above regulations in their respective localities." The issuance of the
proclamation by the Governor-General was the exercise of the delegation of a delegated power, and was even a
sub delegation of that power.
Assuming that it is valid, Act No. 2868 is a general law and does not authorize the Governor-General to fix one
price of rice in Manila and another price in Iloilo. It only purports to authorize him to fix the price of rice in the
Philippine Islands under a law, which is General and uniform, and not local or special. Under the terms of the law,
the price of rice fixed in the proclamation must be the same all over the Islands. There cannot be one price at
Manila and another at Iloilo. Again, it is a mater of common knowledge, and of which this court will take judicial
notice, that there are many kinds of rice with different and corresponding market values, and that there is a wide
range in the price, which varies with the grade and quality. Act No. 2868 makes no distinction in price for the grade
or quality of the rice, and the proclamation, upon which the defendant was tried and convicted, fixes the selling
price of rice in Manila "at P15 per sack of 57½ kilos, or 63 centavos per ganta," and is uniform as to all grades of
rice, and says nothing about grade or quality. Again, it will be noted that the law is confined to palay, rice and corn.
They are products of the Philippine Islands. Hemp, tobacco, coconut, chickens, eggs, and many other things are
also products. Any law which single out palay, rice or corn from the numerous other products of the Islands is not
general or uniform, but is a local or special law. If such a law is valid, then by the same principle, the Governor-
General could be authorized by proclamation to fix the price of meat, eggs, chickens, coconut, hemp, and tobacco,
or any other product of the Islands. In the very nature of things, all of that class of laws should be general and
uniform. Otherwise, there would be an unjust discrimination of property rights, which, under the law, must be equal
and inform. Act No. 2868 is nothing more than a floating law, which, in the discretion and by a proclamation of the
Governor-General, makes it a floating crime to sell rice at a price in excess of the proclamation, without regard to
grade or quality.
When Act No. 2868 is analyzed, it is the violation of the proclamation of the Governor-General which constitutes the
crime. Without that proclamation, it was no crime to sell rice at any price. In other words, the Legislature left it to the
sole discretion of the Governor-General to say what was and what was not "any cause" for enforcing the act, and
what was and what was not "an extraordinary rise in the price of palay, rice or corn," and under certain undefined
conditions to fix the price at which rice should be sold, without regard to grade or quality, also to say whether a
proclamation should be issued, if so, when, and whether or not the law should be enforced, how long it should be
enforced, and when the law should be suspended. The Legislature did not specify or define what was "any cause,"
or what was "an extraordinary rise in the price of rice, palay or corn," Neither did it specify or define the conditions
upon which the proclamation should be issued. In the absence of the proclamation no crime was committed. The
alleged sale was made a crime, if at all, because the Governor-General issued the proclamation. The act or
proclamation does not say anything about the different grades or qualities of rice, and the defendant is charged with
the sale "of one ganta of rice at the price of eighty centavos (P0.80) which is a price greater than that fixed by
Executive order No. 53."
We are clearly of the opinion and hold that Act No. 2868, in so far as it undertakes to authorized the Governor-
General in his discretion to issue a proclamation, fixing the price of rice, and to make the sale of rice in violation of
the price of rice, and to make the sale of rice in violation of the proclamation a crime, is unconstitutional and void.
It may be urged that there was an extraordinary rise in the price of rice and profiteering, which worked a severe
hardship on the poorer classes, and that an emergency existed, but the question here presented is the
constitutionality of a particular portion of a statute, and none of such matters is an argument for, or against, its
constitutionality.
The Constitution is something solid, permanent an substantial. Its stability protects the life, liberty and property
rights of the rich and the poor alike, and that protection ought not to change with the wind or any emergency
condition. The fundamental question involved in this case is the right of the people of the Philippine Islands to be
and live under a republican form of government. We make the broad statement that no state or nation, living under
republican form of government, under the terms and conditions specified in Act No. 2868, has ever enacted a law
delegating the power to any one, to fix the price at which rice should be sold. That power can never be delegated
under a republican form of government.
In the fixing of the price at which the defendant should sell his rice, the law was not dealing with government
property. It was dealing with private property and private rights, which are sacred under the Constitution. If this law
should be sustained, upon the same principle and for the same reason, the Legislature could authorize the
Governor-General to fix the price of every product or commodity in the Philippine Islands, and empower him to
make it a crime to sell any product at any other or different price.
It may be said that this was a war measure, and that for such reason the provision of the Constitution should be
suspended. But the Stubborn fact remains that at all times the judicial power was in full force and effect, and that
while that power was in force and effect, such a provision of the Constitution could not be, and was not, suspended
even in times of war. It may be claimed that during the war, the United States Government undertook to, and did, fix
the price at which wheat and flour should be bought and sold, and that is true. There, the United States had
declared war, and at the time was at war with other nations, and it was a war measure, but it is also true that in
doing so, and as a part of the same act, the United States commandeered all the wheat and flour, and took
possession of it, either actual or constructive, and the government itself became the owner of the wheat and flour,
and fixed the price to be paid for it. That is not this case. Here the rice sold was the personal and private property of
the defendant, who sold it to one of his customers. The government had not bought and did not claim to own the
rice, or have any interest in it, and at the time of the alleged sale, it was the personal, private property of the
defendant. It may be that the law was passed in the interest of the public, but the members of this court have taken
on solemn oath to uphold and defend the Constitution, and it ought not to be construed to meet the changing winds
or emergency conditions. Again, we say that no state or nation under a republican form of government ever
enacted a law authorizing any executive, under the conditions states, to fix the price at which a price person would
sell his own rice, and make the broad statement that no decision of any court, on principle or by analogy, will ever
be found which sustains the constitutionality of the particular portion of Act No. 2868 here in question. By the terms
of the Organic Act, subject only to constitutional limitations, the power to legislate and enact laws is vested
exclusively in the Legislative, which is elected by a direct vote of the people of the Philippine Islands. As to the
question here involved, the authority of the Governor-General to fix the maximum price at which palay, rice and
corn may be sold in the manner power in violation of the organic law.
This opinion is confined to the particular question here involved, which is the right of the Governor-General, upon
the terms and conditions stated in the Act, to fix the price of rice and make it a crime to sell it at a higher price, and
which holds that portions of the Act unconstitutional. It does not decide or undertake to construe the constitutionality
of any of the remaining portions of the Act.
The judgment of the lower court is reversed, and the defendant discharged. So ordered.

PEOPLE OF THE PHILIPPINES ROSENTHAL

G.R. Nos. L-46076 and L-46077 June 12, 1939

Appellants, Jacob Rosenthal and Nicasio Osmeña, were charged in the Court of First Instance of Manila with
having violated Act No. 2581, commonly known as the Blue Sky Law, under the following informations:
CASE NO. 52365
That in or about and during the period comprised between October 1, 1935 and January 22, 1936, both
dates inclusive, in the City of Manila, Philippine Islands, and within the jurisdiction of this court, the said
Nicasio Osmeña and Jacob Rosenthal, two of ten promoters, organizers, founders and incorporators of, the
former being, in addition, one of the members of the board of directors of, the O.R.O. Oil Co., Inc., a
domestic corporation organized under the laws of the Philippines and registered in the mercantile registry
of the Bureau of Commerce, with central office in the said city, the main objects and purposes of which
were "to mine, dig for, or otherwise obtain from earth, petroleum, rock and carbon oils, natural gas, other
volatile mineral substances and salt, and to manufacture, refine, prepare for market, buy, sell and transport
the same in crude or refined condition", and the capital thereof in their articles of incorporation, the accused
herein included, consisting of 3,000 shares without par value, 400 shares of which having been subscribed
by the said accused at 200 shares each and paid partly by them at the price of only P5 per share,
according to the said agreement which shares were speculative securities, because the value thereof
materially depended upon proposed promise for future promotion and development of the oil business
above mentioned rather than on actual tangible assets and conditions thereof, did then and there, with
deliberate intent of evading the provisions of sections 2 and 5 of the said Act No. 2581, and conspiring and
confederating together and helping each other, willfully, unlawfully and feloniously trade in, negotiate and
speculate with, their shares aforesaid, by making personally or through brokers or agents repeated and
successive sales of the said shares at a price ranging from P100 to P300 per share, as follows:
The accused Nicasio Osmeña sold 163 shares to nine different parties, and the accused Jacob Rosenthal
sold 21 shares to seven others, without first obtaining the corresponding written permit or license from the
Insular Treasurer of the Commonwealth of the Philippines, as by law required.
CASE NO. 52366
That in or about and during the period comprised between October 1, 1935, and January 22, 1936, both
dates inclusive, in the City of Manila, Philippine Islands, and within the jurisdiction of this court, the said
Nicasio Osmeña and Jacob Rosenthal, two of the ten promoters, organizers, founders and incorporators of,
the former being, in addition, one of the members of the board of directors of, the South Cebu Oil Co., Inc.,
a domestic corporation organized under the laws of the Philippines and registered in the mercantile registry
of the Bureau of Commerce, with central office in the said city, the main objects and purposes of which
were "to mine, dig for, or otherwise obtain from earth, petroleum, rock or carbon oils, natural gas, other
volatile mineral substances and salt, and to manufacture, refine, prepare for market, buy, sell and transport
the same in crude and refined condition", and the capital stock of which, as per agreement of all the
incorporators thereof in their articles of incorporation, the accused herein included, consisting of 2,800
shares without par value, 200 shares of which having been subscribed by the accused Nicasio Osmeña,
and 100 shares of which having been subscribed by the accused Jacob Rosenthal and paid by both at the
 price of only P5 per share, according to the said agreement, which shares were speculative securities,
because the value thereof materially depended upon proposed promise of future promotion and
development of the oil business above mentioned rather than on actual tangible assets and conditions
thereof, did then and there, with deliberate intent of evading the provisions of sections 2 and 5 of Act No.
2581, and conspiring and confederating together and helping one another, willfully, unlawfully and
feloniously trade in, negotiate and speculate with, their shares aforesaid, by making personally or through
brokers or agents repeated and successive sales of the said shares at a price ranging from P100 to P300
per share, as follows:
The accused Nicasio Osmeña sold 185 shares to nine different parties, and the accused Jacob Rosenthal
sold 12 shares to seven others, without first obtaining the corresponding written permit or license form the
Insular Treasurer of the Commonwealth of the Philippines, as by law provided.
Upon motion of Jacob Rosenthal, the Court of First Instance of Manila granted him separate trial although, when
the cases were called for hearing, the court acceded to the motion of the prosecution that the two cases be tried
jointly inasmuch as the evidence to be adduced by the government therein was the same, without prejudice to
allowing the defendants to present their proof separately. After trial, the lower court, on March 22, 1937, in separate
decisions, found the defendants guilty as charged in the informations. In case No. 52365 Jacob Rosenthal was
sentenced to pay a fine of P500, with subsidiary imprisonment in case of insolvency, and to pay one-half of the
costs; Nicasio Osmeña was sentenced to pay a fine of P1,000, with subsidiary imprisonment in case of insolvency,
and to pay one-half of the costs. In case No. 52366 Jacob Rosenthal was sentenced to pay a fine of P500, with
subsidiary imprisonment in case of insolvency, and to pay one-half of the costs; Nicasio Osmeña was sentenced to
pay a fine of P2,000, with subsidiary imprisonment in case of insolvency, and to pay one-half of the costs. The
defendants duly perfected their appeal from these judgments and the cases were originally elevated to the Court of
Appeals but, upon motion of the Solicitor-General, the same were forwarded to this court in view of the fact that the
constitutionality of Act No. 2581 has been put in issue by appellants. Two separate briefs have been filed by
Rosenthal and Osmeña. In the brief for appellant Rosenthal the following "joint assignment of errors" is made:
1. In declaring that according to the report of the geologist contracted by the O.R. Oil Co. and the South
Cebu Oil Co. to explore the properties leased to said companies, "no habia ninguna indicacion de que
hubiese petroleo en aquellos terrenos", when in truth what the report stated was that in so far as the
O.R.O. Oil Co. land was concerned, the territory covered by the lease if full of possibilities; and with respect
to the South Cebu Oil Co. lease, that no further investigations and expenses be made "unless favorable
test results are obtained on the northern lease."
2. In declaring that the exploration leases were, subsequent to the findings of the geologist, cancelled by
the government, implying thereby that as no oil was found in said lands, the leases were cancelled; when in
truth the cancellation was based on supposed violation of those provisions of the corporation law
prohibiting the setting up of interlocking directorates.
3. In declaring that the defendant, of his 200 shares of stock in the O.R.O. Oil Co., sold twenty-one shares
to different persons and on different dates, one share having been sold directly to one E.F. Pimley; five,
thru a firm of brokers known as Mackay & McCormick, to Arthur Hoyer, Wm. Scheunig, and Modesto
Bautista, in the proportion of two, two and one, respectively; and fifteen shares directly to Henry J. Belden,
R.T. Fitzimmons and D.P. O'Brien, in the proportion of five shares to each of them — when in truth only
that to E.F. Pimley was sold to the latter by the defendant, while those eventually transferred to Hoyer,
Scheunig and Bautista were sold directly to the said firm Mackay & McCormick, which bought them on its
own risk and account, and the remaining fifteen transferred to Belden, O'Brien, and Fitzimmons were
loaned by Rosenthal to Nicasio Osmeña, who was not until now either returned those shares or paid their
value.
4. In also declaring that of his 100 shares of stock in the South Cebu Oil Co., the defendant sold twelve to
various persons and on different dates, when in truth only one of these shares was sold by the defendant to
E.F. Pimley, and the remaining eleven, two of which were transferred to Arthur Hoyer, two to William
Scheunig, one to Jose de la Fuente, one to Crispin Llamado, one to A.M. Opisso, and four to Ines Galano,
were sold and transferred, in one single transaction, to the said firm of brokers directly, which firm bought
said shares on its own risk and account.
5. In declaring that the shares sold to Mackay & McCormick were brought by the latter on credit at P250
each, to be resold by it at P300 each, and that out of the proceeds of the sale of these shares the
defendant received the price agreed upon between him and the said brokerage firm, or P250 per share,
when in truth and in fact there was no agreement between the parties as to whether the said firm was to
 sell said shares to others or whether those shares were to be kept and retained by it on its own risk and
account.
6. In declaring that the corporations had not begun exploration work on the territory covered by their leases,
and that they had no tangible properties.
7. In declaring that while the defendant needed no permit to sell his own stock, the corporations as issuer
being the ones bound to obtain the permit required by the Blue Sky Law, nevertheless he (the defendant)
was guilty of a violation of said law because the possession of the shares held and sold by him was not in
good faith, in that his acquisition thereof was not made in the ordinary and normal course of the business of
the corporations, but that said shares were purchased to indirectly promote the enterprise for which the
corporations were formed; the said defendant having paid in full to the corporations the value of said
shares of stock.
8. In holding as proven that the possession of the defendant of his own stock, which he paid for in full, was
not a possession in good faith, because he, as an incorporator (fundador), should have known that no
permit in writing had been issued the corporations by the Insular Treasurer for the sale of said stock.
9. In overruling the objection to the admission of Exhibit 1-b, and in holding that a permit had not been
issued by the Insular Treasurer for the sale of the stocks of the corporations.
10. In holding that there were repeated and successive sales made by the defendant Rosenthal of his own
shares of stock.
11. In holding that although the defendant was the absolute owner of the stock he sold, his repeated and
successive sales of such stock prove that this claim of ownership (esta pretension de propriedad) was but
a means employed by him to sell said stock at prices very much higher than those he paid for them.
12. In holding that said stock was sold by the defendant without the required permit having been first issued
by the Insular Treasurer, and that the sale was effected as if such permit had been actually issued (como si
en realidad pudieran venderse por haberse expedido tal permiso).
13. In holding that as a result of an investigation conducted by the City Fiscal, the defendant refunded to
Belden, O'Brien and Fitzimmons and others the amount they paid for the stock they purchased.
14. In holding that the opinion given by the Chief of the Insurance Division of the Office of the Insular
Treasurer to the effect that the defendant could sell the said stock without a permit as long as no false
representations were made by the said defendant, can not and does not exempt the latter from criminal
responsibility even though no false representations whatsoever were made by the aforesaid defendant.
15. In holding that the prima facie presumption in section 8 of the law to the effect that the claim of
ownership is not bona fide when repeated and successive sales of such stock are effected, has been totally
destroyed by the fact that said stock absolutely belongs to the defendant, and in not further holding that
because of such absolute ownership the defendant could have legally disposed of such stock in as many
sales as he saw fit without any permit from the Insular Treasurer.
16. In not holding that the Blue Sky Law contravenes the constitutional provisions of the Jones Act in so far
as such law constitutes an undue delegation of legislative powers to the Insular Treasurer, and in so far as
it does not afford equal protection before the law.
17. In not absolving the defendant.
In the brief for appellant Osmeña the following "relacion conjunta de errores" is in turn submitted:
1. Al no sobreseer esta causa despues de promulgada la Ley No. 83 del Commonwealth, no obstante
haberse llamado su atencion al hecho de que esta Ley derogaba la Ley No. 2581 de la Legislatura Filipina,
bajo cuyas disposiciones ha sido procesado el acusado.
2. Al condenar al acusado por infraccion de la "Blue Sky Law", no obstante reconocerse en la decision que
consta en las pruebas que el acusado Osmeña no ha of recido en venta ninguna de aquellas acciones, ni
ha hecho manifestaciones falsas a nadie para poder venderlas, y que la mayor parte, si no todos los que
las compraron, estaban satisfechos de la inversion de su dinero en la adquisicion de tales acciones.
3. Al condenar al acusado por haber vendido acciones especulativas sin licencia, cuando no se probo: (a)
que las acciones de la O.R.O. Oil Co., Inc., y de la South Cebu Oil Co., Inc., eran especulativas por su
naturaleza, y (b) que el acusado Osmeña carecia de licencia para venderlas.
 4. Al declarar que la posesion por el acusado Osmeña de sus acciones de la O.R.O. Oil Co., Inc., y de la
South Cebu Oil Co., Inc., no era de buena fe y que no las habia adquirido por su propia cuenta sino para la
promocion indirecta de un provecto de negocio o empresa especulativa.
5. Al no declarar que la "Blue Sky Law" es contraria a las normas constitucionales que gozaba al tiempo de
su promulgacion : (1) porque contiene en sus disposiciones una delegacion indebida de facultades
legislativas; (2) porque es vaga e incierte en sus disposiciones y, por tanto, nula; y (3) porque infringe el
derecho de igual proteccion ante la ley, viola la libertad de contratacion y contraviene el derecho de
adquirir, gozar y disponer libremente de la propriedad privada, siendo su promulgacion, por tanto, un acto
de opresion y de verdadera tirania.
6. Al no absolveral acusado Nicasio Osmeña..
To meet the foregoing errors assigned by the appellants, plaintiff-appellee contends:
(a) That the enactment of Commonwealth Act No. 83 did not have the effect of relieving appellants from
criminal liability.
(b) That the appellants acted as promoters of the O.R.O. Oil Co. and the South Cebu Oil Co.
(c) That the shares of the two corporations are speculative in nature.
(d) That the appellants sold their shares in said corporations without permit or knowing that the latter did
not have the permit required by law.
(e) That the appellants are not entitled to the exemption provided in section 8 of the Blue Sky Law (Act No.
2581).
(f) That the Blue Sky Law is valid and constitutional.
Most of the errors assigned by the appellants deal with questions of fact. This is particularly true with reference to
errors one, two, three, four, five, six, seven, eight, nine, ten, eleven, twelve and thirteen of appellant Jacob
Rosenthal, and error four of appellant Nicasio Osmeña. There is no material discrepancy regarding the facts, and
we shall proceed to consider the legal questions propounded, which are in the main set forth by the Solicitor-
General in his brief.
It is contended by the appellants that Act No. 2581 is unconstitutional on three grounds. (1) That it constitutes an
undue delegation of legislative authority to the Insular Treasurer: (2) that it does not afford equal protection before
the law; and (3) that it is vague and ambiguous.
Under section 2 of Act No. 2581, every person, partnership, association, or corporation attempting to offer to sell in
the Philippines speculative securities of any kind or character whatsoever, is under obligation to file previously with
the Insular Treasurer the various documents and papers enumerated therein and to pay the required tax of twenty
pesos. Certain securities listed in section 3 are exempted from the operation of the Act. Section 5 imposes upon the
Insular Treasurer the mandatory duty to examine the statements and documents thus filed and the additional duty
to make or cause to be made, if deemed advisable by him, a detailed examination of the affairs of the applicant.
Section 5 also provides that "whatever the said Treasurer of the Philippine Islands is satisfied, either with or without
the examination herein provided, that any person, partnership, association or corporation is entitled to the right to
offer its securities as above defined and provided for sale in the Philippine Islands, he shall issue to such person,
partnership, association or corporation a certificate or permit reciting that such person, partnership, association or
corporation has complied with the provisions of this Act, and that such person, partnership, association or
corporation, its brokers or agents are entitled to offer the securities named in said certificate or permit for sale"; that
"said Treasurer shall furthermore have authority, whenever in his judgment it is in the public interest, to cancel said
certificate or permit", and that "an appeal from the decision of the Insular Treasurer may be had within the period of
thirty days to the Secretary of Finance."
Appellants argue that, while Act No. 2581 empowers the Insular Treasurer to issue and cancel certificates or
permits for the sale of speculative securities, no standard or rule is fixed in the Act which can guide said official in
determining the cases in which a certificate or permit ought to be issued, thereby making his opinion the sole
criterion in the matter of its issuance, with the result that, legislative powers being unduly delegated to the Insular
Treasurer, Act No. 2581 is unconstitutional. We are of the opinion that the Act furnishes a sufficient standard for the
Insular Treasurer to follow in reaching a decision regarding the issuance or cancellation of a certificate or permit.
The certificate or permit to be issued under the Act must recite that the person, partnership, association or
corporation applying therefor "has complied with the provisions of this Act", and this requirement, construed in
relation to the other provisions of the law, means that a certificate or permit shall be issued by the Insular Treasurer
when the provisions of Act No. 2581 have been complied with. Upon the other hand, the authority of the Insular
Treasurer to cancel a certificate or permit is expressly conditioned upon a finding that such cancellation "is in the
public interest." In view of the intention and purpose of Act No. 2581 — to protect the public against "speculative
schemes which have no more basis than so many feet of blue sky" and against the "sale of stock in fly-by-night
concerns, visionary oil wells, distant gold mines, and other like fraudulent exploitations", — we incline to hold that
"public interest" in this case is a sufficient standard to guide the Insular Treasurer in reaching a decision on a matter
pertaining to the issuance or cancellation of certificates or permits. As we observed in the case of People vs.
Fernandez and Trinidad (G.R. No. 45655, June 15, 1938), "siendo el objecto de la ley el evitar especulaciones
ruinosas, es claro que el interes publico, es, y debe ser la razon en que el Tesorero Insular deba basar sus
resoluciones." And the term "public interest" is not without a settled meaning.
Appellant insists that the delegation of authority to the Commission is invalid because the stated criterion is
uncertain. That criterion is the public interest. It is a mistaken assumption that this is a mere general
reference to public welfare without any standard to guide determinations. The purpose of the Act, the
requirement it imposes, and the context of the provision in question show the contrary. . . . (New York
Central Securities Corporation vs. U.S.A., 287 U.S., 12, 24, 25; 77 Law. ed., 138, 145, 146.) (See
also Schenchter Poultry Corporation vs. U.S., 295 U.S., 495; 540; 79 Law. ed., 1570, 1585;
Ferrazzini vs. Gsell, 34 Phil., 697, 711, 712.)
In this connection, we cannot overlook the fact that the Act No. 2581 allows an appeal from the decision of the
Insular Treasurer to the Secretary of Finance. Hence, it cannot be contended that the Insular Treasurer can act and
decide without any restraining influence.
The theory of the separation of powers is designed by its originators to secure action and at the same time to
forestall over action which necessarily results from undue concentration of powers, and thereby obtain efficiency
and prevent despotism. Thereby, the "rule of law" was established which narrows the range of governmental action
and makes it subject to control by certain legal devices. As a corollary, we find the rule prohibiting delegation of
legislative authority, and from the earliest time American legal authorities have proceeded on the theory that
legislative power must be exercised by the legislative alone. It is frankness, however, to confess that as one delves
into the mass of judicial pronouncements, he finds a great deal of confusion. One thing, however, is apparent in the
development of the principle of separation of powers and that is that the maximum of delegatus non potest
delegare or delegata potestas non potest delegare, attributed to Bracton (De Legibus et Consuetudinious
Angliae, edited by G.E. Woodbine, Yale University Press [1922], vol. 2, p.167) but which is also recognized in
principle in the Roman Law (D.17.18.3), has been made to adapt itself to the complexities of modern governments,
giving rise to the adoption, within certain limits, of the principle of "subordinate legislation", not only in the United
States and England but in practically all modern governments. The difficulty lies in the fixing of the limit and extent
of the authority. While courts have undertaken to lay down general principles, the safest is to decide each case
according to its peculiar environment, having in mind the wholesome legislative purpose intended to be achieved.
Counsel for appellant Jacob Rosenthal also argues that the Insular Treasurer possesses "the discretionary power
to determine when a security is a speculative security and when it is not" because "he is given the power to compel
any corporation, association or partnership already functioning, to surrender to him for examination its books and
accounts enumerated in section 2, 'whenever he has reasonable ground to believe that the securities being sold or
offered for sale are of a speculative character.'" It should be observed, however, that section 1 of Act No. 2581
defines and enumerates what are "speculative securities" and all the other provisions of the Act must be read and
construed in conjunction and harmony with said section.
Laws of the different states of the American Union similar in nature to Act No. 2581 were assailed on constitutional
grounds somewhat analogous to those involved in the case at bar, but the decisions of both the state courts and
the Supreme Court of the United States have upheld their constitutionality. In the case of Hall vs. Geiger-Jones Co.
(242 U.S., 539), the contention was made that the Blue Sky Law of Ohio, which requires the commissioner before
granting a license to "be satisfied of the good repute in business of such applicant and named agents", and which
empowers said commissioner to revoke the license or refuse to renew it upon ascertaining that the licensee "is of
bad business repute; has violated any provisions of this act or has engaged, or is about to engage, under favor of
such license, in illegitimate business or in fraudulent transactions", is unconstitutional because the law has failed to
give a standard to guide or determine the decision of the commissioner leaves "room for the play and action of
purely personal and arbitrary power", but the Supreme Court of the United States overruled the contention and
held:
Besides it is certainly apparent that if the conditions are within the power of the State to impose, they can
only be ascertained by an executive officer. Reputation and character are quite tangible attributes, but
there can be no legislative definition of them that can automatically attach to or identify individuals
possessing them, and necessarily the aid of some executive agency must be invoked. The contention of
 appellees would take from government one of its most essential instrumentalities, of which the various
national and state commissions are instances. But the contention may be answered by authority. In
Gundling vs. Chicago (177 U.S., 183), an ordinance of the City of Chicago was passed on which required a
license of dealers in cigarettes and as a condition of the license that the applicant, if a single individual, all
of the members of the firm, if a co-partnership, and any person or persons in charge of the business, if a
corporation, should be of good character and reputation, and the duty was delegated to the mayor of the
city to determine the existence of the conditions. The ordinance was sustained. To this case may be added
Red "C" Oil Manufacturing Co. vs. North Carolina (222 U.S., 380, 394, and cases cited); Mutual Film
Corporation vs. Industrial Commission of Ohio (236 U.S., 230); Brazee vs. Michigan (241 U.S., 340,
341). See also Reetz vs. Michigan, (188 U.S., 505); Lieberman vs. Van de Carr (199 U. S., 552). (Pp. 553,
554.)
In the case of Leach vs. Daugherty (238 P., 160), where the contention was advanced that section 6 of the
Corporate Securities Act of California which authorized the corporation commissioner to refuse to grant a broker's
certificate, if he is not satisfied of the "good business reputation of the applicant", is unconstitutional because "no
rules, regulations, or specifications are set forth in the said Corporate Securities Act defining what shall constitute
'good business reputation,'" it was ruled that "Considering such objection, it would appear that the leading case of
Hall vs. Geiger-Jones Co. (242 U.S., 539; 37 Sup. Ct., 217; 61 Law. ed., 480; L.R.A., 1917F, 514; Ann. Cas.
1917C, 643), is so conclusively against the petitioner's contention that little room is left for argument", and that "it is
well-settled principle of law in this state that by legislative act a commission or board may be empowered to
ascertain the existence of facts, upon the finding of which may depend the right to continue in the practice of a
profession or a regulated business."
In the case of G.F. Redmond & Co. vs. Michigan Securities Commission (222 Mich., 1; 192 N.W., 688), in which it
was argued that the provision in section 11955 of the Compiled Laws of 1915 (Michigan Blue Sky Law), authorizing
the commission to revoke a license for "good cause" upon notice to the dealer and a hearing duly had, is
unconstitutional because the term "good cause" is so vague and indefinite that the law practically vested upon the
commission arbitrary powers, the court said:
The term "good cause" for revocation, as employed in the statute, relates so clearly to the conduct of the
licensed business, within the limits fixed by law, as to negative any arbitrary official action, and is so
comprehensive of unlawful, irregular, fraudulent, unauthorized, and forbidden business management and
transactions conducted as to demand no more particular specification of its meaning and its application.
Must the law map out , for the guidance of the licensee, a code of ethics and post danger signals against
inhibited and dishonest practices? The defendant had no right to have the conduct of its business charted
by specifications of forbidden practices involving revocation of the license. The general scope and
expressed purpose of the law, together with open and fair dealing, entered the license, and transgression
thereof constituted good cause for revocation thereof. (P. 689.)
In the case of State ex rel. Central Steam Heat & Power Co. vs. Gettle (Wis. [1928], 220 N.W., 201), where it was
argued that the requirement of the Wisconsin Blue Sky Law (St. 1925, sec. 184.09 [3]; Law 1927, c. 444) that the
Railroad Commission shall find that the "financial condition, plan of operation, and the proposed undertakings of the
corporation are such as to afford reasonable protection to the purchasers of the securities to be issued", is
unconstitutional for the reason that (1) the Legislature has no power to regulate the issuance of securities in order
to protect the investing public; (2) the Legislature does not provide a standard to control the commission; (3) the
statute is so indefinite and uncertain in its meaning as to be incapable of administration; and (4) the statute
delegates to the railroad commission legislative power, the court said:
This is but a usual provision found in the many so-called Blue Sy Laws, the constitutionality of which has
been upheld by the courts generally. The constitutionality of similar provisions has been so thoroughly
considered by this court that further discussion thereof is unnecessary. The following cases abundantly
establish the constitutionality of this provision. (State ex rel. Minneapolis, St. Paul & Sault Ste. Marie
Railway Company vs. Railroad Commission of Wisconsin, 137 Wis., 80; 117 N.W., 846; Appleton Water
Works Co. vs.Railroad Commission of Wisconsin, 154 Wis., 121; 142 N.E., 476; 47 L.R.A. [N.S.], 770; Ann.
Cas. 1915B, 1160; State ex rel. City of Milwaukee vs. Milwaukee Electric Railway & Light Co., 169 Wis.,
183; 172 N.W., 230; City of Milwaukee vs. Railroad Commission of Wisconsin, 183 Wis., 498; 196 N.W.,
853; Wisconsin Southern Ry. Co. vs. Railroad Commission of Wisconsin, 185 Wis., 313; 201 N.W., 244;
Kretuzer vs.Westfahl, 187 Wis., 463; 204 N.W., 595.)
Another ground relied upon by appellants in contending that Act No. 2581 is unconstitutional is that it denies equal
protection of the laws because the law discriminates between an owner who sells his securities in a single
transaction and one who disposes of them in repeated and successive transactions. In disposing of this contention
we need only refer to the case of Hall vs. Geiger-Jones Co., supra, wherein the Supreme Court of the United States
held:
"Discriminations are asserted against the statute which extend, it is contended, to denying appellees the
equal protection of the laws. Counsel enumerates them as follows:
"Prominent among such discriminations are . . . between an owner who sells his securities in a single
transaction and one who disposes of them in successive transactions; . . . "
We cannot give separate attention to the asserted discriminations. It is enough to say that they are within
the power of classification which a state has. A state "ay direct its law against what it deems the evil as it
actually exists without covering the whole field of possible abuses, and it may do so none the less that the
forbidden act does not differ in kind from those that are allowed . . .. If a class is deemed to present a
conspicuous example of what the legislature seeks to prevent, the 14th Amendment allows it to be dealt
with although otherwise and merely logically not distinguishable from others not embraced in the law.
Counsel for appellant Nicasio Osmeña further alleges that Act No. 2581 is unconstitutional on the ground that it is
vague and uncertain. A similar contention has already been overruled by this court in the case of People vs.
Fernandez and Trinidad, supra. An Act will be declared void and inoperative on the ground of vagueness and
uncertainty only upon a showing that the defect is such that the courts are unable to determine, with any
reasonable degree of certainty, what the legislature intended. The circumstance that this court has no more than
one occasion given effect and application to Act. No. 2581 (Valhalla Hotel Construction Co. vs. Carmona, 44 Phil.,
233; People vs.Nimrod McKinney, 47 Phil., 792; People vs. Fernandez and Trinidad, supra) decisively argues
against the position taken by appellant Osmeña. In this connection we cannot pretermit reference to the rule that
"legislation should not be held invalid on the ground of uncertainty if susceptible of any reasonable construction that
will support and give it effect. An Act will not be declared inoperative and ineffectual on the ground that it furnishes
no adequate means to secure the purpose for which it is passed, if men of common sense and reason can devise
and provide the means, and all the instrumentalities necessary for its execution are within the reach of those
intrusted therewith." (25 R.C.L., pp. 810, 811.)
Reaffirming our view in People vs. Fernandez and Trinidad, supra, we hold that Act No. 2581 is valid and
constitutional.
Taking up now the question raised with reference to the speculative nature of the shares of the ). O.R.O. Oil Co.
and the South Cebu Oil Co., we find that section 1, paragraph (b) of Act No. 2581, in defining speculative
securities, provides:
. . . The term "speculative securities" as used in this Act shall be deemed to mean and include:
xxx xxx xxx
(b) All securities the value of which materially depend upon proposed or promised future promotion or
development rather than on present tangible assets and conditions.
At the beginning, and at the time of the issuance of the shares of the O.R.O. Oil Co. and the South Cebu Oil Co., all
that these companies had were their exploration leases. Beyond this, there was nothing tangible. The value of
those shares depended upon future development and the uncertainty of "striking" oil. The shares issued under
these circumstances are clearly speculative because they depended upon proposed or promised future promotion
or development rather than on present tangible assets and conditions.
Appellants next contend that in view of the repeal of Act No. 2581 by Commonwealth Act. No. 83, they have been
relieved of criminal responsibility. Assuming that the former Act has been entirely and completely abrogated by the
latter Act — a point we do not have to decide — this fact does not relieve appellants from criminal responsibility. "It
has been the holding, and it must again be the holding, that where an Act of the Legislature which penalizes an
offense repeals a former Act which penalized the same offense, such repeal does not have the effect of thereafter
depriving the courts of jurisdiction to try, convict and sentence offenders charged with violations of the old law."
(People vs. Concepcion, 44 Phil., 126, 132; Ong Chang Wing and Kwong Fok vs. U.S., 218 U.S., 272; 40 Phil.,
1046; U.S. vs. Cuna, 12 Phil., 241; U.S. vs. Aron, 12 Phil., 778; U.S. vs. Tonga, 15 Phil., 43; U.S. vs. Molina, 17
Phil., 582.)
Appellants further contend that they come under the exception provided in section 8 of Act No. 2581. This section
provides:
This Act shall not apply to the holder of any speculative security who is not the issuer thereof, nor to the
person who has acquired the same for his own account in the usual and ordinary course of business and
not for the direct or indirect promotion of any enterprise or scheme within the purview of this Act, unless
 such possession is in good faith. Repeated and successive sales of any speculative securities shall
be prima facieevidence that the claim of ownership is not bona fide, but is a mere shift, device or plot to
evade the provisions of this Act. Such speculators shall incur the penalty provided for in section seven of
this Act.
Under this section, there are clearly two classes of persons to whom the law is not applicable: (1) Persons who hold
speculative securities but who are not the issuers thereof; and (2) persons who have acquired the same for their
own account in the usual and ordinary course of business and not for the direct or indirect promotion of any
enterprise or scheme within the purview of this Act, provided (the law uses the term "unless") such possession is in
good faith.
Passing upon the questions of fact necessarily involved in the application of section 8 of Act No. 2581, the trial
court in case No. 52365 makes the following findings with reference to Nicasio Osmeña:
. . . El acusado Osmeña no ha adquirido por su propia cuenta en el curso ordinario y corriente de los
negocios en la O.R.O. Oil Co. Las acciones por el vendidas, pues las adquirio mediante suscripcion como
uno de los fundadores de dicha corporacion, pero si para la promocion indirecta de un proyecto de negocio
o empresa para el cual se habia organizado le corporacion, habiendo pagado totalmente el importe de
dichas acciones a la misma corporacion; ni tampoco las poseia de buena fe, puesto que como fundador y
miembro de la junta directiva de dicha corporacion debia saber que no se habia expedido por el Tesorero
Insular ningun permiso por escrito a al corporacion para la venta de dichas acciones. Y las ventas
sucesivas y repetidas de esas acciones que tenia en la misma corporacion, aunque tales acciones eran
suyas por haberlas el obtenido de la corporacion mediante suscripcion y pago del importe correspondiente
prueban que esta pretension de propiedad ha sido solamente un medio de que se ha valido para vender
tales acciones a precios mucho mayores que el importe por por haberse expedido tal permiso.
The same findings, mutatis mutandis, are made in case No. 52366 against the same appellant, and against Jacob
Rosenthal in the two cases. Even if we could, we do not feel justified in disturbing the findings of the trial court. The
good faith set up by appellant Rosenthal for having acted on the advice of one Garcia, an officer in the Insular
Treasury, and the subsequent devolution by him of amounts collected from some of the purchasers of the shares
may be considered as a circumstance in his favor in the imposition of the penalty prescribed by law but does not
exempt him from criminal responsibility. (People vs. McCalla, 63 Cal. App., 783; 220 Pac., 436; 367 U.S., 585; 69
Law. ed., 799; 45 Sup. Ct., 461; People vs. Fernandez and Trinidad, supra.)
The judgments of the lower court are affirmed, with the modification that the fines are reduced as to accused Jacob
Rosenthal from P500 to P200 in each case, and as to accused Nicasio Osmeña, from P1,000 to P500 in case No.
52365 and from P2,000 to P1,000 in case No. 52366, with subsidiary imprisonment for both in case of insolvency,
and costs. So ordered.

CERVANTES vs. AUDITOR GENERAL

G.R. No. L-4043 May 26, 1952

This is a petition to review a decision of the Auditor General denying petitioner's claim for quarters allowance as
manager of the National Abaca and Other Fibers Corporation, otherwise known as the NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15,000 a year. By a resolution
of the Board of Directors of this corporation approved on January 19 of that year, he was granted quarters
allowance of not exceeding P400 a month effective the first of that month. Submitted the Control Committee of the
Government Enterprises Council for approval, the said resolution was on August 3, 1949, disapproved by the said
Committee on strenght of the recommendation of the NAFCO auditor, concurred in by the Auditor General, (1) that
quarters allowance constituted additional compensation prohibited by the charter of the NAFCO, which fixes the
salary of the general manager thereof at the sum not to exceed P15,000 a year, and (2) that the precarious
financial condition of the corporation did not warrant the granting of such allowance.
On March 16, 1949, the petitioner asked the Control Committee to reconsider its action and approve his claim for
allowance for January to June 15, 1949, amounting to P1,650. The claim was again referred by the Control
Committee to the auditor General for comment. The latter, in turn referred it to the NAFCO auditor, who reaffirmed
his previous recommendation and emphasized that the fact that the corporation's finances had not improved. In
view of this, the auditor General also reiterated his previous opinion against the granting of the petitioner's claim
and so informed both the Control Committee and the petitioner. But as the petitioner insisted on his claim the
Auditor General Informed him on June 19, 1950, of his refusal to modify his decision. Hence this petition for review.
The NAFCO was created by the Commonwealth Act No. 332, approved on June 18, 1939, with a capital stock of
P20,000,000, 51 per cent of which was to be able to be subscribed by the National Government and the remainder
to be offered to provincial, municipal, and the city governments and to the general public. The management the
corporation was vested in a board of directors of not more than 5 members appointed by the president of the
Philippines with the consent of the Commission on Appointments. But the corporation was made subject to the
provisions of the corporation law in so far as they were compatible with the provisions of its charter and the
purposes of which it was created and was to enjoy the general powers mentioned in the corporation law in addition
to those granted in its charter. The members of the board were to receive each a per diem of not to exceed P30 for
each day of meeting actually attended, except the chairman of the board, who was to be at the same time the
general manager of the corporation and to receive a salary not to exceed P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the Philippines, among other
things, to effect such reforms and changes in government owned and controlled corporations for the purpose of
promoting simplicity, economy and efficiency in their operation Pursuant to this authority, the President on October
4, 1947, promulgated Executive Order No. 93 creating the Government Enterprises Council to be composed of the
President of the Philippines as chairman, the Secretary of Commerce and Industry as vice-chairman, the chairman
of the board of directors and managing heads of all such corporations as ex-officio members, and such additional
members as the President might appoint from time to time with the consent of the Commission on Appointments.
The council was to advise the President in the excercise of his power of supervision and control over these
corporations and to formulate and adopt such policy and measures as might be necessary to coordinate their
functions and activities. The Executive Order also provided that the council was to have a Control Committee
composed of the Secretary of Commerce and Industry as chairman, a member to be designated by the President
from among the members of the council as vice-chairman and the secretary as ex-officio member, and with the
power, among others —
(1) To supervise, for and under the direction of the President, all the corporations owned or controlled by
the Government for the purpose of insuring efficiency and economy in their operations;
(2) To pass upon the program of activities and the yearly budget of expenditures approved by the
respective Boards of Directors of the said corporations; and
(3) To carry out the policies and measures formulated by the Government Enterprises Council with the
approval of the President. (Sec. 3, Executive Order No. 93.)
With its controlling stock owned by the Government and the power of appointing its directors vested in the
President of the Philippines, there can be no question that the NAFCO is Government controlled corporation
subject to the provisions of Republic Act No. 51 and the executive order (No. 93) promulgated in accordance
therewith. Consequently, it was also subject to the powers of the Control Committee created in said executive
order, among which is the power of supervision for the purpose of insuring efficiency and economy in the
operations of the corporation and also the power to pass upon the program of activities and the yearly budget of
expenditures approved by the board of directors. It can hardly be questioned that under these powers the Control
Committee had the right to pass upon, and consequently to approve or disapprove, the resolution of the NAFCO
board of directors granting quarters allowance to the petitioners as such allowance necessarily constitute an item of
expenditure in the corporation's budget. That the Control Committee had good grounds for disapproving the
resolution is also clear, for, as pointed out by the Auditor General and the NAFCO auditor, the granting of the
allowance amounted to an illegal increase of petitioner's salary beyond the limit fixed in the corporate charter and
was furthermore not justified by the precarious financial condition of the corporation.
It is argued, however, that Executive Order No. 93 is null and void, not only because it is based on a law that is
unconstitutional as an illegal delegation of legislature power to executive, but also because it was promulgated
beyond the period of one year limited in said law.
The second ground ignores the rule that in the computation of the time for doing an act, the first day is excluded
and the last day included (Section 13 Rev. Ad. Code.) As the act was approved on October 4, 1946, and the
President was given a period of one year within which to promulgate his executive order and that the order was in
fact promulgated on October 4, 1947, it is obvious that under the above rule the said executive order was
promulgated within the period given.
As to the first ground, the rule is that so long as the Legislature "lays down a policy and a standard is established by
the statute" there is no undue delegation. (11 Am. Jur. 957). Republic Act No. 51 in authorizing the President of the
Philippines, among others, to make reforms and changes in government-controlled corporations, lays down a
standard and policy that the purpose shall be to meet the exigencies attendant upon the establishment of the free
and independent government of the Philippines and to promote simplicity, economy and efficiency in their
operations. The standard was set and the policy fixed. The President had to carry the mandate. This he did by
promulgating the executive order in question which, tested by the rule above cited, does not constitute an undue
delegation of legislative power.
It is also contended that the quarters allowance is not compensation and so the granting of it to the petitioner by the
NAFCO board of directors does not contravene the provisions of the NAFCO charter that the salary of the chairman
of said board who is also to be general manager shall not exceed P15,000 per anum. But regardless of whether
quarters allowance should be considered as compensation or not, the resolution of the board of the directors
authorizing payment thereof to the petitioner cannot be given effect since it was disapproved by the Control
Committee in the exercise of powers granted to it by Executive Order No. 93. And in any event, petitioner's
contention that quarters allowance is not compensation, a proposition on which American authorities appear
divided, cannot be insisted on behalf of officers and employees working for the Government of the Philippines and
its Instrumentalities, including, naturally, government-controlled corporations. This is so because Executive Order
No. 332 of 1941, which prohibits the payment of additional compensation to those working for the Government and
its Instrumentalities, including government-controlled corporations, was in 1945 amended by Executive Order No.
77 by expressly exempting from the prohibition the payment of quarters allowance "in favor of local government
officials and employees entitled to this under existing law." The amendment is a clear indication that quarters
allowance was meant to be included in the term "additional compensation", for otherwise the amendment would not
have expressly excepted it from the prohibition. This being so, we hold that, for the purpose of the executive order
just mentioned, quarters allowance is considered additional compensation and, therefore, prohibited.
In view of the foregoing, the petition for review is dismissed, with costs.

CALALANG vs. Williams

G.R. No. 47800. December 2, 1940

SYLLABUS
1. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF COMMONWEALTH ACT No. 648; DELEGATION OF
LEGISLATIVE POWER; AUTHORITY OF DIRECTOR OF PUBLIC WORKS AND SECRETARY OF PUBLIC
WORKS AND COMMUNICATIONS TO PROMULGATE RULES AND REGULATIONS. — The provisions of section
1 of Commonwealth Act No. 648 do not confer legislative power upon the Director of Public Works and the
Secretary of Public Works and Communications. The authority therein conferred upon them and under which they
promulgated the rules and regulations now complained of is not to determine what public policy demands but
merely to carry out the legislative policy laid down by the National Assembly in said Act, to wit, "to promote safe
transit upon, and avoid obstructions on, roads and streets designated as national roads by acts of the National
Assembly or by executive orders of the President of the Philippines" and to close them temporarily to any or all
classes of traffic "whenever the condition of the road or the traffic thereon makes such action necessary or
advisable in the public convenience and interest." The delegated power, if at all, therefore, is not the determination
of what the law shall be, but merely the ascertainment of the facts and circumstances upon which the application of
said law is to be predicated. To promulgate rules and regulations on the use of national roads and to determine
when and how long a national road should be closed to traffic, in view of the condition of the road or the traffic
thereon and the requirements of public convenience and interest, is an administrative function which cannot be
directly discharged by the National Assembly. It must depend on the discretion of some other government official to
whom is confided the duty of determining whether the proper occasion exists for executing the law. But it cannot be
said that the exercise of such discretion is the making of the law.

2. ID.; ID.; POLICE POWER; PERSONAL LIBERTY; GOVERNMENTAL AUTHORITY. — Commonwealth Act No.
548 was passed by the National Assembly in the exercise of the paramount police power of the state. Said Act, by
virtue of which the rules and regulations complained of were promulgated, aims to promote safe transit upon and
avoid obstructions on national roads, in the interest and convenience of the public. In enacting said law, therefore,
the National Assembly was prompted by considerations of public convenience and welfare. It was inspired by a
desire to relieve congestion of traffic, which is, to say the least, a menace to public safety. Public welfare, then, lies
at the bottom of the enactment of said law, and the state in order to promote the general welfare may interfere with
 personal liberty, with property, and with business and occupations. Persons and property may be subjected to all
kinds of restraints and burdens, in order to secure the general comfort, health, and prosperity of the state (U.S. v.
Gomer Jesus, 31 Phil., 218). To this fundamental aim of our Government the rights of the individual are
subordinated. Liberty is a blessing without which life is a misery, but liberty should not be made to prevail over
authority because then society will fall into anarchy. Neither should authority be made to prevail over liberty
because then the individual will fall into slavery. The citizen should achieve the required balance of liberty and
authority in his mind through education and, personal discipline, so that there may be established the resultant
equilibrium, which means peace and order and happiness for all. The moment greater authority is conferred upon
the government, logically so much is withdrawn from the residuum of liberty which resides in the people. The
paradox lies in the fact that the apparent curtailment of liberty is precisely the very means of insuring its
preservation.

3. ID.; ID.; SOCIAL JUSTICE. — Social justice is "neither communism, nor despotism, nor atomism, nor anarchy,"
but the humanization of laws and the equalization of social and economic forces by the State so that justice in its
rational and objectively secular conception may at least be approximated. Social justice means the promotion of the
welfare of all the people, the adoption by the Government of measures calculated to insure economic stability of all
the competent elements of society, through the maintenance of a proper economic and social equilibrium in the
interrelations of the members of the community, constitutionally, through the adoption of measures legally
justifiable, or extra-constitutionally, through the exercise of powers underlying the existence of all governments on
the time-honored principle of salus populi est suprema lex. Social justice, therefore, must be founded on the
recognition of the necessity of interdependence among divers and diverse units of a society and of the protection
that should be equally and evenly extended to all groups as a combined force in our social and economic life,
consistent with the fundamental and paramount objective of the state of promoting the health, comfort, and quiet of
all persons, and of bringing about "the greatest good to the greatest number."
DECISION
Maximo Calalang, in his capacity as a private citizen and as a taxpayer of Manila, brought before this court this
petition for a writ of prohibition against the respondents, A. D. Williams, as Chairman of the National Traffic
Commission; Vicente Fragante, as Director of Public Works; Sergio Bayan, as Acting Secretary of Public Works
and Communications; Eulogio Rodriguez, as Mayor of the City of Manila; and Juan Dominguez, as Acting Chief of
Police of Manila.

It is alleged in the petition that the National Traffic Commission, in its resolution of July 17, 1940, resolved to
recommend to the Director of Public Works and to the Secretary of Public Works and Communications that animal-
drawn vehicles be prohibited from passing along Rosario Street extending from Plaza Calderon de la Barca to
Dasmariñas Street, from 7:30 a.m. to 12:30 p.m. and from 1:30 p.m. to 5:30 p.m.; and along Rizal Avenue
extending from the railroad crossing at Antipolo Street to Echague Street, from 7 a.m. to 11 p.m., from a period of
one year from the date of the opening of the Colgante Bridge to traffic; that the Chairman of the National Traffic
Commission, on July 18, 1940 recommended to the Director of Public Works the adoption of the measure proposed
in the resolution aforementioned, in pursuance of the provisions of Commonwealth Act No. 548 which authorizes
said Director of Public Works, with the approval of the Secretary of Public Works and Communications, to
promulgate rules and regulations to regulate and control the use of and traffic on national roads; that on August 2,
1940, the Director of Public Works, in his first indorsement to the Secretary of Public Works and Communications,
recommended to the latter the approval of the recommendation made by the Chairman of the National Traffic
Commission as aforesaid, with the modification that the closing of Rizal Avenue to traffic to animal-drawn vehicles
be limited to the portion thereof extending from the railroad crossing at Antipolo Street to Azcarraga Street; that on
August 10, 1940, the Secretary of Public Works and Communications, in his second indorsement addressed to the
Director of Public Works, approved the recommendation of the latter that Rosario Street and Rizal Avenue be
closed to traffic of animal-drawn vehicles, between the points and during the hours as above indicated, for a period
of one year from the date of the opening of the Colgante Bridge to traffic; that the Mayor of Manila and the Acting
Chief of Police of Manila have enforced and caused to be enforced the rules and regulations thus adopted; that as
a consequence of such enforcement, all animal-drawn vehicles are not allowed to pass and pick up passengers in
the places above-mentioned to the detriment not only of their owners but of the riding public as well.

It is contended by the petitioner that Commonwealth Act No. 548 by which the Director of Public Works, with the
approval of the Secretary of Public Works and Communications, is authorized to promulgate rules and regulations
for the regulation and control of the use of and traffic on national roads and streets is unconstitutional because it
constitutes an undue delegation of legislative power. This contention is untenable. As was observed by this court in
Rubi v. Provincial Board of Mindoro (39 Phil, 660, 700), "The rule has nowhere been better stated than in the early
Ohio case decided by Judge Ranney, and since followed in a multitude of cases, namely: ’The true distinction
therefore is between the delegation of power to make the law, which necessarily involves a discretion as to what it
shall be, and conferring an authority or discretion as to its execution, to be exercised under and in pursuance of the
law. The first cannot be done; to the latter no valid objection can be made.’ (Cincinnati, W. & Z. R. Co. v. Comm’rs.
Clinton County, 1 Ohio St., 88.) Discretion, as held by Chief Justice Marshall in Wayman v. Southard (10 Wheat., 1)
may be committed by the Legislature to an executive department or official. The Legislature may make decisions of
executive departments or subordinate officials thereof, to whom it has committed the execution of certain acts, final
on questions of fact. (U.S. v. Kinkead, 248 Fed., 141.) The growing tendency in the decisions is to give prominence
to the ’necessity’ of the case."cralaw virtua1aw library

Section 1 of Commonwealth Act No. 548 reads as follows:jgc:chanrobles.com.ph

"SECTION 1. To promote safe transit upon, and avoid obstructions on, roads and streets designated as national
roads by acts of the National Assembly or by executive orders of the President of the Philippines, the Director of
Public Works, with the approval of the Secretary of Public Works and Communications, shall promulgate the
necessary rules and regulations to regulate and control the use of and traffic on such roads and streets. Such rules
and regulations, with the approval of the President, may contain provisions controlling or regulating the construction
of buildings or other structures within a reasonable distance from along the national roads. Such roads may be
temporarily closed to any or all classes of traffic by the Director of Public Works and his duly authorized
representatives whenever the condition of the road or the traffic thereon makes such action necessary or advisable
in the public convenience and interest, or for a specified period, with the approval of the Secretary of Public Works
and Communications."cralaw virtua1aw library

The above provisions of law do not confer legislative power upon the Director of Public Works and the Secretary of
Public Works and Communications. The authority therein conferred upon them and under which they promulgated
the rules and regulations now complained of is not to determine what public policy demands but merely to carry out
the legislative policy laid down by the National Assembly in said Act, to wit, "to promote safe transit upon and avoid
obstructions on, roads and streets designated as national roads by acts of the National Assembly or by executive
orders of the President of the Philippines" and to close them temporarily to any or all classes of traffic "whenever
the condition of the road or the traffic makes such action necessary or advisable in the public convenience and
interest." The delegated power, if at all, therefore, is not the determination of what the law shall be, but merely the
ascertainment of the facts and circumstances upon which the application of said law is to be predicated. To
promulgate rules and regulations on the use of national roads and to determine when and how long a national road
should be closed to traffic, in view of the condition of the road or the traffic thereon and the requirements of public
convenience and interest, is an administrative function which cannot be directly discharged by the National
Assembly. It must depend on the discretion of some other government official to whom is confided the duty of
determining whether the proper occasion exists for executing the law. But it cannot be said that the exercise of
such discretion is the making of the law. As was said in Locke’s Appeal (72 Pa. 491): "To assert that a law is less
than a law, because it is made to depend on a future event or act, is to rob the Legislature of the power to act
wisely for the public welfare whenever a law is passed relating to a state of affairs not yet developed, or to things
future and impossible to fully know." The proper distinction the court said was this: "The Legislature cannot
delegate its power to make the law; but it can make a law to delegate a power to determine some fact or state of
things upon which the law makes, or intends to make, its own action depend. To deny this would be to stop the
wheels of government. There are many things upon which wise and useful legislation must depend which cannot
be known to the law-making power, and, must, therefore, be a subject of inquiry and determination outside of the
halls of legislation." (Field v. Clark, 143 U. S. 649, 694; 36 L. Ed. 294.)

In the case of People v. Rosenthal and Osmeña, G.R. Nos. 46076 and 46077, promulgated June 12, 1939, and in
Pangasinan Transportation v. The Public Service Commission, G.R. No. 47065, promulgated June 26, 1940, this
Court had occasion to observe that the principle of separation of powers has been made to adapt itself to the
complexities of modern governments, giving rise to the adoption, within certain limits, of the principle of
"subordinate legislation," not only in the United States and England but in practically all modern governments.
Accordingly, with the growing complexity of modern life, the multiplication of the subjects of governmental
regulations, and the increased difficulty of administering the laws, the rigidity of the theory of separation of
governmental powers has, to a large extent, been relaxed by permitting the delegation of greater powers by the
legislative and vesting a larger amount of discretion in administrative and executive officials, not only in the
execution of the laws, but also in the promulgation of certain rules and regulations calculated to promote public
interest.

The petitioner further contends that the rules and regulations promulgated by the respondents pursuant to the
provisions of Commonwealth Act No. 548 constitute an unlawful interference with legitimate business or trade and
abridge the right to personal liberty and freedom of locomotion. Commonwealth Act No. 548 was passed by the
National Assembly in the exercise of the paramount police power of the state.

Said Act, by virtue of which the rules and regulations complained of were promulgated, aims to promote safe transit
upon and avoid obstructions on national roads, in the interest and convenience of the public. In enacting said law,
therefore, the National Assembly was prompted by considerations of public convenience and welfare. It was
inspired by a desire to relieve congestion of traffic. which is, to say the least, a menace to public safety. Public
welfare, then, lies at the bottom of the enactment of said law, and the state in order to promote the general welfare
may interfere with personal liberty, with property, and with business and occupations. Persons and property may be
subjected to all kinds of restraints and burdens, in order to secure the general comfort, health, and prosperity of the
state (U.S. v. Gomez Jesus, 31 Phil., 218). To this fundamental aim of our Government the rights of the individual
are subordinated. Liberty is a blessing without which life is a misery, but liberty should not be made to prevail over
authority because then society will fall into anarchy. Neither should authority be made to prevail over liberty
because then the individual will fall into slavery. The citizen should achieve the required balance of liberty and
authority in his mind through education and personal discipline, so that there may be established the resultant
equilibrium, which means peace and order and happiness for all. The moment greater authority is conferred upon
the government, logically so much is withdrawn from the residuum of liberty which resides in the people. The
paradox lies in the fact that the apparent curtailment of liberty is precisely the very means of insuring its
preservation.

The scope of police power keeps expanding as civilization advances. As was said in the case of Dobbins v. Los
Angeles (195 U.S. 223, 238; 49 L. ed. 169), "the right to exercise the police power is a continuing one, and a
business lawful today may in the future, because of the changed situation, the growth of population or other
causes, become a menace to the public health and welfare, and be required to yield to the public good." And in
People v. Pomar (46 Phil., 440), it was observed that "advancing civilization is bringing within the police power of
the state today things which were not thought of as being within such power yesterday. The development of
civilization, the rapidly increasing population, the growth of public opinion, with an increasing desire on the part of
the masses and of the government to look after and care for the interests of the individuals of the state, have
brought within the police power many questions for regulation which formerly were not so considered."cralaw
virtua1aw library

The petitioner finally avers that the rules and regulations complained of infringe upon the constitutional precept
regarding the promotion of social justice to insure the well-being and economic security of all the people. The
promotion of social justice, however, is to be achieved not through a mistaken sympathy towards any given group.
Social justice is "neither communism, nor despotism, nor atomism, nor anarchy," but the humanization of laws and
the equalization of social and economic forces by the State so that justice in its rational and objectively secular
conception may at least be approximated. Social justice means the promotion of the welfare of all the people, the
adoption by the Government of measures calculated to insure economic stability of all the competent elements of
society, through the maintenance of a proper economic and social equilibrium in the interrelations of the members
of the community, constitutionally, through the adoption of measures legally justifiable, or extra-constitutionally,
through the exercise of powers underlying the existence of all governments on the time-honored principle of salus
populi est suprema lex.

Social justice, therefore, must be founded on the recognition of the necessity of interdependence among divers and
diverse units of a society and of the protection that should be equally and evenly extended to all groups as a
combined force in our social and economic life, consistent with the fundamental and paramount objective of the
state of promoting the health, comfort, and quiet of all persons, and of bringing about "the greatest good to the
greatest number."cralaw virtua1aw library

In view of the foregoing, the writ of prohibition prayed for is hereby denied, with costs against the petitioner. So
ordered.
YNOT vs. INTERMEDIATE APPELLATE COURT
G.R. No. 74457 March 20, 1987

The essence of due process is distilled in the immortal cry of Themistocles to Alcibiades "Strike — but hear me
first!" It is this cry that the petitioner in effect repeats here as he challenges the constitutionality of Executive Order
No. 626-A.
The said executive order reads in full as follows:
WHEREAS, the President has given orders prohibiting the interprovincial movement of carabaos
and the slaughtering of carabaos not complying with the requirements of Executive Order No. 626
particularly with respect to age;
WHEREAS, it has been observed that despite such orders the violators still manage to circumvent
the prohibition against inter-provincial movement of carabaos by transporting carabeef instead; and
WHEREAS, in order to achieve the purposes and objectives of Executive Order No. 626 and the
prohibition against interprovincial movement of carabaos, it is necessary to strengthen the said
Executive Order and provide for the disposition of the carabaos and carabeef subject of the
violation;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the
powers vested in me by the Constitution, do hereby promulgate the following:
SECTION 1. Executive Order No. 626 is hereby amended such that henceforth, no carabao
regardless of age, sex, physical condition or purpose and no carabeef shall be transported from
one province to another. The carabao or carabeef transported in violation of this Executive Order
as amended shall be subject to confiscation and forfeiture by the government, to be distributed to
charitable institutions and other similar institutions as the Chairman of the National Meat Inspection
Commission may ay see fit, in the case of carabeef, and to deserving farmers through dispersal as
the Director of Animal Industry may see fit, in the case of carabaos.
SECTION 2. This Executive Order shall take effect immediately.
Done in the City of Manila, this 25th day of October, in the year of Our Lord, nineteen hundred and
eighty.

The petitioner had transported six carabaos in a pump boat from Masbate to Iloilo on January 13, 1984, when they
were confiscated by the police station commander of Barotac Nuevo, Iloilo, for violation of the above
measure. 1 The petitioner sued for recovery, and the Regional Trial Court of Iloilo City issued a writ
of replevin upon his filing of a supersedeas bond of P12,000.00. After considering the merits of the case, the court
sustained the confiscation of the carabaos and, since they could no longer be produced, ordered the confiscation of
the bond. The court also declined to rule on the constitutionality of the executive order, as raise by the petitioner, for
lack of authority and also for its presumed validity. 2
The petitioner appealed the decision to the Intermediate Appellate Court,* 3 which upheld the trial court, ** and he
has now come before us in this petition for review on certiorari.
The thrust of his petition is that the executive order is unconstitutional insofar as it authorizes outright confiscation
of the carabao or carabeef being transported across provincial boundaries. His claim is that the penalty is invalid
because it is imposed without according the owner a right to be heard before a competent and impartial court as
guaranteed by due process. He complains that the measure should not have been presumed, and so sustained, as
constitutional. There is also a challenge to the improper exercise of the legislative power by the former President
under Amendment No. 6 of the 1973 Constitution. 4
While also involving the same executive order, the case of Pesigan v. Angeles 5 is not applicable here. The
question raised there was the necessity of the previous publication of the measure in the Official Gazette before it
could be considered enforceable. We imposed the requirement then on the basis of due process of law. In doing
so, however, this Court did not, as contended by the Solicitor General, impliedly affirm the constitutionality of
Executive Order No. 626-A. That is an entirely different matter.
This Court has declared that while lower courts should observe a becoming modesty in examining constitutional
questions, they are nonetheless not prevented from resolving the same whenever warranted, subject only to review
by the highest tribunal. 6 We have jurisdiction under the Constitution to "review, revise, reverse, modify or affirm on
appeal or certiorari, as the law or rules of court may provide," final judgments and orders of lower courts in, among
others, all cases involving the constitutionality of certain measures. 7 This simply means that the resolution of such
cases may be made in the first instance by these lower courts.
And while it is true that laws are presumed to be constitutional, that presumption is not by any means conclusive
and in fact may be rebutted. Indeed, if there be a clear showing of their invalidity, and of the need to declare them
so, then "will be the time to make the hammer fall, and heavily," 8 to recall Justice Laurel's trenchant warning.
Stated otherwise, courts should not follow the path of least resistance by simply presuming the constitutionality of a
law when it is questioned. On the contrary, they should probe the issue more deeply, to relieve the abscess,
paraphrasing another distinguished jurist, 9 and so heal the wound or excise the affliction.
Judicial power authorizes this; and when the exercise is demanded, there should be no shirking of the task for fear
of retaliation, or loss of favor, or popular censure, or any other similar inhibition unworthy of the bench, especially
this Court.
The challenged measure is denominated an executive order but it is really presidential decree, promulgating a new
rule instead of merely implementing an existing law. It was issued by President Marcos not for the purpose of taking
care that the laws were faithfully executed but in the exercise of his legislative authority under Amendment No. 6. It
was provided thereunder that whenever in his judgment there existed a grave emergency or a threat or imminence
thereof or whenever the legislature failed or was unable to act adequately on any matter that in his judgment
required immediate action, he could, in order to meet the exigency, issue decrees, orders or letters of instruction
that were to have the force and effect of law. As there is no showing of any exigency to justify the exercise of that
extraordinary power then, the petitioner has reason, indeed, to question the validity of the executive order.
Nevertheless, since the determination of the grounds was supposed to have been made by the President "in his
judgment, " a phrase that will lead to protracted discussion not really necessary at this time, we reserve resolution
of this matter until a more appropriate occasion. For the nonce, we confine ourselves to the more fundamental
question of due process.
It is part of the art of constitution-making that the provisions of the charter be cast in precise and unmistakable
language to avoid controversies that might arise on their correct interpretation. That is the Ideal. In the case of the
due process clause, however, this rule was deliberately not followed and the wording was purposely kept
ambiguous. In fact, a proposal to delineate it more clearly was submitted in the Constitutional Convention of 1934,
but it was rejected by Delegate Jose P. Laurel, Chairman of the Committee on the Bill of Rights, who forcefully
argued against it. He was sustained by the body. 10
The due process clause was kept intentionally vague so it would remain also conveniently resilient. This was felt
necessary because due process is not, like some provisions of the fundamental law, an "iron rule" laying down an
implacable and immutable command for all seasons and all persons. Flexibility must be the best virtue of the
guaranty. The very elasticity of the due process clause was meant to make it adapt easily to every situation,
enlarging or constricting its protection as the changing times and circumstances may require.
Aware of this, the courts have also hesitated to adopt their own specific description of due process lest they confine
themselves in a legal straitjacket that will deprive them of the elbow room they may need to vary the meaning of the
clause whenever indicated. Instead, they have preferred to leave the import of the protection open-ended, as it
were, to be "gradually ascertained by the process of inclusion and exclusion in the course of the decision of cases
as they arise." 11 Thus, Justice Felix Frankfurter of the U.S. Supreme Court, for example, would go no farther than
to define due process — and in so doing sums it all up — as nothing more and nothing less than "the embodiment
of the sporting Idea of fair play." 12
When the barons of England extracted from their sovereign liege the reluctant promise that that Crown would
thenceforth not proceed against the life liberty or property of any of its subjects except by the lawful judgment of his
peers or the law of the land, they thereby won for themselves and their progeny that splendid guaranty of fairness
that is now the hallmark of the free society. The solemn vow that King John made at Runnymede in 1215 has since
then resounded through the ages, as a ringing reminder to all rulers, benevolent or base, that every person, when
confronted by the stern visage of the law, is entitled to have his say in a fair and open hearing of his cause.
The closed mind has no place in the open society. It is part of the sporting Idea of fair play to hear "the other side"
before an opinion is formed or a decision is made by those who sit in judgment. Obviously, one side is only one-half
of the question; the other half must also be considered if an impartial verdict is to be reached based on an informed
appreciation of the issues in contention. It is indispensable that the two sides complement each other, as unto the
bow the arrow, in leading to the correct ruling after examination of the problem not from one or the other
perspective only but in its totality. A judgment based on less that this full appraisal, on the pretext that a hearing is
unnecessary or useless, is tainted with the vice of bias or intolerance or ignorance, or worst of all, in repressive
regimes, the insolence of power.
The minimum requirements of due process are notice and hearing 13 which, generally speaking, may not be
dispensed with because they are intended as a safeguard against official arbitrariness. It is a gratifying commentary
on our judicial system that the jurisprudence of this country is rich with applications of this guaranty as proof of our
fealty to the rule of law and the ancient rudiments of fair play. We have consistently declared that every person,
faced by the awesome power of the State, is entitled to "the law of the land," which Daniel Webster described
almost two hundred years ago in the famous Dartmouth College Case, 14 as "the law which hears before it
condemns, which proceeds upon inquiry and renders judgment only after trial." It has to be so if the rights of every
person are to be secured beyond the reach of officials who, out of mistaken zeal or plain arrogance, would degrade
the due process clause into a worn and empty catchword.
This is not to say that notice and hearing are imperative in every case for, to be sure, there are a number of
admitted exceptions. The conclusive presumption, for example, bars the admission of contrary evidence as long as
such presumption is based on human experience or there is a rational connection between the fact proved and the
fact ultimately presumed therefrom. 15 There are instances when the need for expeditions action will justify
omission of these requisites, as in the summary abatement of a nuisance per se, like a mad dog on the loose,
which may be killed on sight because of the immediate danger it poses to the safety and lives of the people.
Pornographic materials, contaminated meat and narcotic drugs are inherently pernicious and may be summarily
destroyed. The passport of a person sought for a criminal offense may be cancelled without hearing, to compel his
return to the country he has fled. 16 Filthy restaurants may be summarily padlocked in the interest of the public
health and bawdy houses to protect the public morals. 17 In such instances, previous judicial hearing may be
omitted without violation of due process in view of the nature of the property involved or the urgency of the need to
protect the general welfare from a clear and present danger.
The protection of the general welfare is the particular function of the police power which both restraints and is
restrained by due process. The police power is simply defined as the power inherent in the State to regulate liberty
and property for the promotion of the general welfare. 18 By reason of its function, it extends to all the great public
needs and is described as the most pervasive, the least limitable and the most demanding of the three inherent
powers of the State, far outpacing taxation and eminent domain. The individual, as a member of society, is
hemmed in by the police power, which affects him even before he is born and follows him still after he is dead —
from the womb to beyond the tomb — in practically everything he does or owns. Its reach is virtually limitless. It is a
ubiquitous and often unwelcome intrusion. Even so, as long as the activity or the property has some relevance to
the public welfare, its regulation under the police power is not only proper but necessary. And the justification is
found in the venerable Latin maxims, Salus populi est suprema lex and Sic utere tuo ut alienum non laedas, which
call for the subordination of individual interests to the benefit of the greater number.
It is this power that is now invoked by the government to justify Executive Order No. 626-A, amending the basic rule
in Executive Order No. 626, prohibiting the slaughter of carabaos except under certain conditions. The original
measure was issued for the reason, as expressed in one of its Whereases, that "present conditions demand that
the carabaos and the buffaloes be conserved for the benefit of the small farmers who rely on them for energy
needs." We affirm at the outset the need for such a measure. In the face of the worsening energy crisis and the
increased dependence of our farms on these traditional beasts of burden, the government would have been remiss,
indeed, if it had not taken steps to protect and preserve them.
A similar prohibition was challenged in United States v. Toribio, 19 where a law regulating the registration, branding
and slaughter of large cattle was claimed to be a deprivation of property without due process of law. The defendant
had been convicted thereunder for having slaughtered his own carabao without the required permit, and he
appealed to the Supreme Court. The conviction was affirmed. The law was sustained as a valid police measure to
prevent the indiscriminate killing of carabaos, which were then badly needed by farmers. An epidemic had stricken
many of these animals and the reduction of their number had resulted in an acute decline in agricultural output,
which in turn had caused an incipient famine. Furthermore, because of the scarcity of the animals and the
consequent increase in their price, cattle-rustling had spread alarmingly, necessitating more effective measures for
the registration and branding of these animals. The Court held that the questioned statute was a valid exercise of
the police power and declared in part as follows:
To justify the State in thus interposing its authority in behalf of the public, it must appear, first, that
the interests of the public generally, as distinguished from those of a particular class, require such
interference; and second, that the means are reasonably necessary for the accomplishment of the
purpose, and not unduly oppressive upon individuals. ...
 From what has been said, we think it is clear that the enactment of the provisions of the statute
under consideration was required by "the interests of the public generally, as distinguished from
those of a particular class" and that the prohibition of the slaughter of carabaos for human
consumption, so long as these animals are fit for agricultural work or draft purposes was a
"reasonably necessary" limitation on private ownership, to protect the community from the loss of
the services of such animals by their slaughter by improvident owners, tempted either by greed of
momentary gain, or by a desire to enjoy the luxury of animal food, even when by so doing the
productive power of the community may be measurably and dangerously affected.
In the light of the tests mentioned above, we hold with the Toribio Case that the carabao, as the poor man's tractor,
so to speak, has a direct relevance to the public welfare and so is a lawful subject of Executive Order No. 626. The
method chosen in the basic measure is also reasonably necessary for the purpose sought to be achieved and not
unduly oppressive upon individuals, again following the above-cited doctrine. There is no doubt that by banning the
slaughter of these animals except where they are at least seven years old if male and eleven years old if female
upon issuance of the necessary permit, the executive order will be conserving those still fit for farm work or
breeding and preventing their improvident depletion.
But while conceding that the amendatory measure has the same lawful subject as the original executive order, we
cannot say with equal certainty that it complies with the second requirement, viz., that there be a lawful method. We
note that to strengthen the original measure, Executive Order No. 626-A imposes an absolute ban not on
the slaughter of the carabaos but on their movement, providing that "no carabao regardless of age, sex, physical
condition or purpose (sic) and no carabeef shall be transported from one province to another." The object of the
prohibition escapes us. The reasonable connection between the means employed and the purpose sought to be
achieved by the questioned measure is missing
We do not see how the prohibition of the inter-provincial transport of carabaos can prevent their indiscriminate
slaughter, considering that they can be killed anywhere, with no less difficulty in one province than in another.
Obviously, retaining the carabaos in one province will not prevent their slaughter there, any more than moving them
to another province will make it easier to kill them there. As for the carabeef, the prohibition is made to apply to it as
otherwise, so says executive order, it could be easily circumvented by simply killing the animal. Perhaps so.
However, if the movement of the live animals for the purpose of preventing their slaughter cannot be prohibited, it
should follow that there is no reason either to prohibit their transfer as, not to be flippant dead meat.
Even if a reasonable relation between the means and the end were to be assumed, we would still have to reckon
with the sanction that the measure applies for violation of the prohibition. The penalty is outright confiscation of the
carabao or carabeef being transported, to be meted out by the executive authorities, usually the police only. In the
Toribio Case, the statute was sustained because the penalty prescribed was fine and imprisonment, to be imposed
by the court after trial and conviction of the accused. Under the challenged measure, significantly, no such trial is
prescribed, and the property being transported is immediately impounded by the police and declared, by the
measure itself, as forfeited to the government.
In the instant case, the carabaos were arbitrarily confiscated by the police station commander, were returned to the
petitioner only after he had filed a complaint for recovery and given a supersedeas bond of P12,000.00, which was
ordered confiscated upon his failure to produce the carabaos when ordered by the trial court. The executive order
defined the prohibition, convicted the petitioner and immediately imposed punishment, which was carried out
forthright. The measure struck at once and pounced upon the petitioner without giving him a chance to be heard,
thus denying him the centuries-old guaranty of elementary fair play.
It has already been remarked that there are occasions when notice and hearing may be validly dispensed with
notwithstanding the usual requirement for these minimum guarantees of due process. It is also conceded that
summary action may be validly taken in administrative proceedings as procedural due process is not necessarily
judicial only. 20 In the exceptional cases accepted, however. there is a justification for the omission of the right to a
previous hearing, to wit, the immediacy of the problem sought to be corrected and the urgency of the need to
correct it.
In the case before us, there was no such pressure of time or action calling for the petitioner's peremptory treatment.
The properties involved were not even inimical per se as to require their instant destruction. There certainly was no
reason why the offense prohibited by the executive order should not have been proved first in a court of justice,
with the accused being accorded all the rights safeguarded to him under the Constitution. Considering that, as we
held in Pesigan v. Angeles, 21 Executive Order No. 626-A is penal in nature, the violation thereof should have been
pronounced not by the police only but by a court of justice, which alone would have had the authority to impose the
prescribed penalty, and only after trial and conviction of the accused.
We also mark, on top of all this, the questionable manner of the disposition of the confiscated property as
prescribed in the questioned executive order. It is there authorized that the seized property shall "be distributed to
charitable institutions and other similar institutions as the Chairman of the National Meat Inspection
Commission may see fit, in the case of carabeef, and to deserving farmers through dispersal as the Director of
Animal Industry may see fit, in the case of carabaos." (Emphasis supplied.) The phrase "may see fit" is an
extremely generous and dangerous condition, if condition it is. It is laden with perilous opportunities for partiality
and abuse, and even corruption. One searches in vain for the usual standard and the reasonable guidelines, or
better still, the limitations that the said officers must observe when they make their distribution. There is none. Their
options are apparently boundless. Who shall be the fortunate beneficiaries of their generosity and by what criteria
shall they be chosen? Only the officers named can supply the answer, they and they alone may choose the grantee
as they see fit, and in their own exclusive discretion. Definitely, there is here a "roving commission," a wide and
sweeping authority that is not "canalized within banks that keep it from overflowing," in short, a clearly profligate
and therefore invalid delegation of legislative powers.
To sum up then, we find that the challenged measure is an invalid exercise of the police power because the method
employed to conserve the carabaos is not reasonably necessary to the purpose of the law and, worse, is unduly
oppressive. Due process is violated because the owner of the property confiscated is denied the right to be heard in
his defense and is immediately condemned and punished. The conferment on the administrative authorities of the
power to adjudge the guilt of the supposed offender is a clear encroachment on judicial functions and militates
against the doctrine of separation of powers. There is, finally, also an invalid delegation of legislative powers to the
officers mentioned therein who are granted unlimited discretion in the distribution of the properties arbitrarily taken.
For these reasons, we hereby declare Executive Order No. 626-A unconstitutional.
We agree with the respondent court, however, that the police station commander who confiscated the petitioner's
carabaos is not liable in damages for enforcing the executive order in accordance with its mandate. The law was at
that time presumptively valid, and it was his obligation, as a member of the police, to enforce it. It would have been
impertinent of him, being a mere subordinate of the President, to declare the executive order unconstitutional and,
on his own responsibility alone, refuse to execute it. Even the trial court, in fact, and the Court of Appeals itself did
not feel they had the competence, for all their superior authority, to question the order we now annul.
The Court notes that if the petitioner had not seen fit to assert and protect his rights as he saw them, this case
would never have reached us and the taking of his property under the challenged measure would have become
a faitaccompli despite its invalidity. We commend him for his spirit. Without the present challenge, the matter would
have ended in that pump boat in Masbate and another violation of the Constitution, for all its obviousness, would
have been perpetrated, allowed without protest, and soon forgotten in the limbo of relinquished rights.
The strength of democracy lies not in the rights it guarantees but in the courage of the people to invoke them
whenever they are ignored or violated. Rights are but weapons on the wall if, like expensive tapestry, all they do is
embellish and impress. Rights, as weapons, must be a promise of protection. They become truly meaningful, and
fulfill the role assigned to them in the free society, if they are kept bright and sharp with use by those who are not
afraid to assert them.
WHEREFORE, Executive Order No. 626-A is hereby declared unconstitutional. Except as affirmed above, the
decision of the Court of Appeals is reversed. The supersedeas bond is cancelled and the amount thereof is ordered
restored to the petitioner. No costs.
SO ORDERED.

BELGICA vs. EXECUTIVE SECRETARY

G.R. No. 208566 November 19, 2013

ALCANTARA vs. DRILON

G.R. No. 208493

NEPOMUCENO vs. AQUINO III

G.R. No. 209251

DECISION
"Experience is the oracle of truth."1
-James Madison
Before the Court are consolidated petitions2 taken under Rule 65 of the Rules of Court, all of which assail the
constitutionality of the Pork Barrel System. Due to the complexity of the subject matter, the Court shall heretofore
discuss the system‘s conceptual underpinnings before detailing the particulars of the constitutional challenge.
The Facts
I. Pork Barrel: General Concept.
"Pork Barrel" is political parlance of American -English origin.3 Historically, its usage may be traced to the
degrading ritual of rolling out a barrel stuffed with pork to a multitude of black slaves who would cast their
famished bodies into the porcine feast to assuage their hunger with morsels coming from the generosity of
their well-fed master.4 This practice was later compared to the actions of American legislators in trying to
direct federal budgets in favor of their districts.5 While the advent of refrigeration has made the actual pork
barrel obsolete, it persists in reference to political bills that "bring home the bacon" to a legislator‘s district
and constituents.6 In a more technical sense, "Pork Barrel" refers to an appropriation of government
spending meant for localized projects and secured solely or primarily to bring money to a representative's
district.7Some scholars on the subject further use it to refer to legislative control of local appropriations. 8
In the Philippines, "Pork Barrel" has been commonly referred to as lump-sum, discretionary funds of
Members of the Legislature,9 although, as will be later discussed, its usage would evolve in reference to
certain funds of the Executive.
II. History of Congressional Pork Barrel in the Philippines.
A. Pre-Martial Law Era (1922-1972).
Act 3044,10 or the Public Works Act of 1922, is considered11 as the earliest form of "Congressional
Pork Barrel" in the Philippines since the utilization of the funds appropriated therein were subjected
to post-enactment legislator approval. Particularly, in the area of fund release, Section 3 12 provides
that the sums appropriated for certain public works projects13 "shall be distributed x x x subject to
the approval of a joint committee elected by the Senate and the House of Representatives. "The
committee from each House may also authorize one of its members to approve the distribution
made by the Secretary of Commerce and Communications."14 Also, in the area of fund
realignment, the same section provides that the said secretary, "with the approval of said joint
committee, or of the authorized members thereof, may, for the purposes of said distribution,
transfer unexpended portions of any item of appropriation under this Act to any other item
hereunder."
In 1950, it has been documented15 that post-enactment legislator participation broadened from the
areas of fund release and realignment to the area of project identification. During that year, the
mechanics of the public works act was modified to the extent that the discretion of choosing
projects was transferred from the Secretary of Commerce and Communications to legislators. "For
the first time, the law carried a list of projects selected by Members of Congress, they ‘being the
representatives of the people, either on their own account or by consultation with local officials or
civil leaders.‘"16 During this period, the pork barrel process commenced with local government
councils, civil groups, and individuals appealing to Congressmen or Senators for projects. Petitions
that were accommodated formed part of a legislator‘s allocation, and the amount each legislator
would eventually get is determined in a caucus convened by the majority. The amount was then
integrated into the administration bill prepared by the Department of Public Works and
Communications. Thereafter, the Senate and the House of Representatives added their own
provisions to the bill until it was signed into law by the President – the Public Works Act.17 In the
1960‘s, however, pork barrel legislation reportedly ceased in view of the stalemate between the
House of Representatives and the Senate.18
B. Martial Law Era (1972-1986).
While the previous" Congressional Pork Barrel" was apparently discontinued in 1972 after Martial
Law was declared, an era when "one man controlled the legislature," 19 the reprieve was only
temporary. By 1982, the Batasang Pambansa had already introduced a new item in the General
Appropriations Act (GAA) called the" Support for Local Development Projects" (SLDP) under the
article on "National Aid to Local Government Units". Based on reports, 20 it was under the SLDP that
the practice of giving lump-sum allocations to individual legislators began, with each assemblyman
receiving ₱500,000.00. Thereafter, assemblymen would communicate their project preferences to
 the Ministry of Budget and Management for approval. Then, the said ministry would release the
allocation papers to the Ministry of Local Governments, which would, in turn, issue the checks to
the city or municipal treasurers in the assemblyman‘s locality. It has been further reported that
"Congressional Pork Barrel" projects under the SLDP also began to cover not only public works
projects, or so- called "hard projects", but also "soft projects",21 or non-public works projects such
as those which would fall under the categories of, among others, education, health and livelihood. 22
C. Post-Martial Law Era:
Corazon Cojuangco Aquino Administration (1986-1992).
After the EDSA People Power Revolution in 1986 and the restoration of Philippine democracy,
"Congressional Pork Barrel" was revived in the form of the "Mindanao Development Fund" and the
"Visayas Development Fund" which were created with lump-sum appropriations of ₱480 Million
and ₱240 Million, respectively, for the funding of development projects in the Mindanao and
Visayas areas in 1989. It has been documented23 that the clamor raised by the Senators and the
Luzon legislators for a similar funding, prompted the creation of the "Countrywide Development
Fund" (CDF) which was integrated into the 1990 GAA24 with an initial funding of ₱2.3 Billion to
cover "small local infrastructure and other priority community projects."
Under the GAAs for the years 1991 and 1992,25 CDF funds were, with the approval of the
President, to be released directly to the implementing agencies but "subject to the submission of
the required list of projects and activities."Although the GAAs from 1990 to 1992 were silent as to
the amounts of allocations of the individual legislators, as well as their participation in the
identification of projects, it has been reported26 that by 1992, Representatives were receiving ₱12.5
Million each in CDF funds, while Senators were receiving ₱18 Million each, without any limitation or
qualification, and that they could identify any kind of project, from hard or infrastructure projects
such as roads, bridges, and buildings to "soft projects" such as textbooks, medicines, and
scholarships.27
D. Fidel Valdez Ramos (Ramos) Administration (1992-1998).
The following year, or in 1993,28 the GAA explicitly stated that the release of CDF funds was to be
made upon the submission of the list of projects and activities identified by, among others,
individual legislators. For the first time, the 1993 CDF Article included an allocation for the Vice-
President.29 As such, Representatives were allocated ₱12.5 Million each in CDF funds, Senators,
₱18 Million each, and the Vice-President, ₱20 Million.
In 1994,30 1995,31 and 1996,32 the GAAs contained the same provisions on project identification
and fund release as found in the 1993 CDF Article. In addition, however, the Department of Budget
and Management (DBM) was directed to submit reports to the Senate Committee on Finance and
the House Committee on Appropriations on the releases made from the funds. 33
Under the 199734 CDF Article, Members of Congress and the Vice-President, in consultation with
the implementing agency concerned, were directed to submit to the DBM the list of 50% of projects
to be funded from their respective CDF allocations which shall be duly endorsed by (a) the Senate
President and the Chairman of the Committee on Finance, in the case of the Senate, and (b) the
Speaker of the House of Representatives and the Chairman of the Committee on Appropriations, in
the case of the House of Representatives; while the list for the remaining 50% was to be submitted
within six (6) months thereafter. The same article also stated that the project list, which would be
published by the DBM,35 "shall be the basis for the release of funds" and that "no funds
appropriated herein shall be disbursed for projects not included in the list herein required."
The following year, or in 1998,36 the foregoing provisions regarding the required lists and
endorsements were reproduced, except that the publication of the project list was no longer
required as the list itself sufficed for the release of CDF Funds.
The CDF was not, however, the lone form of "Congressional Pork Barrel" at that time. Other forms
of "Congressional Pork Barrel" were reportedly fashioned and inserted into the GAA (called
"Congressional Insertions" or "CIs") in order to perpetuate the ad ministration‘s political agenda. 37 It
has been articulated that since CIs "formed part and parcel of the budgets of executive
departments, they were not easily identifiable and were thus harder to monitor." Nonetheless, the
lawmakers themselves as well as the finance and budget officials of the implementing agencies, as
well as the DBM, purportedly knew about the insertions.38 Examples of these CIs are the
 Department of Education (DepEd) School Building Fund, the Congressional Initiative Allocations,
the Public Works Fund, the El Niño Fund, and the Poverty Alleviation Fund. 39 The allocations for
the School Building Fund, particularly, ―shall be made upon prior consultation with the
representative of the legislative district concerned.” 40 Similarly, the legislators had the power to
direct how, where and when these appropriations were to be spent.41
E. Joseph Ejercito Estrada (Estrada) Administration (1998-2001).
In 1999,42 the CDF was removed in the GAA and replaced by three (3) separate forms of CIs,
namely, the "Food Security Program Fund,"43 the "Lingap Para Sa Mahihirap Program Fund,"44and
the "Rural/Urban Development Infrastructure Program Fund,"45 all of which contained a special
provision requiring "prior consultation" with the Member s of Congress for the release of the funds.
It was in the year 200046 that the "Priority Development Assistance Fund" (PDAF) appeared in the
GAA. The requirement of "prior consultation with the respective Representative of the District"
before PDAF funds were directly released to the implementing agency concerned was explicitly
stated in the 2000 PDAF Article. Moreover, realignment of funds to any expense category was
expressly allowed, with the sole condition that no amount shall be used to fund personal services
and other personnel benefits.47 The succeeding PDAF provisions remained the same in view of the
re-enactment48 of the 2000 GAA for the year 2001.
F. Gloria Macapagal-Arroyo (Arroyo) Administration (2001-2010).
The 200249 PDAF Article was brief and straightforward as it merely contained a single special
provision ordering the release of the funds directly to the implementing agency or local government
unit concerned, without further qualifications. The following year, 2003, 50 the same single provision
was present, with simply an expansion of purpose and express authority to realign. Nevertheless,
the provisions in the 2003 budgets of the Department of Public Works and Highways 51 (DPWH)
and the DepEd52 required prior consultation with Members of Congress on the aspects of
implementation delegation and project list submission, respectively. In 2004, the 2003 GAA was re-
enacted.53
In 2005,54 the PDAF Article provided that the PDAF shall be used "to fund priority programs and
projects under the ten point agenda of the national government and shall be released directly to the
implementing agencies." It also introduced the program menu concept,55 which is essentially a list
of general programs and implementing agencies from which a particular PDAF project may be
subsequently chosen by the identifying authority. The 2005 GAA was re-enacted56 in 2006 and
hence, operated on the same bases. In similar regard, the program menu concept was consistently
integrated into the 2007,57 2008,58 2009,59 and 201060 GAAs.
Textually, the PDAF Articles from 2002 to 2010 were silent with respect to the specific amounts
allocated for the individual legislators, as well as their participation in the proposal and identification
of PDAF projects to be funded. In contrast to the PDAF Articles, however, the provisions under the
DepEd School Building Program and the DPWH budget, similar to its predecessors, explicitly
required prior consultation with the concerned Member of Congress 61anent certain aspects of
project implementation.
Significantly, it was during this era that provisions which allowed formal participation of non-
governmental organizations (NGO) in the implementation of government projects were introduced.
In the Supplemental Budget for 2006, with respect to the appropriation for school buildings, NGOs
were, by law, encouraged to participate. For such purpose, the law stated that "the amount of at
least ₱250 Million of the ₱500 Million allotted for the construction and completion of school
buildings shall be made available to NGOs including the Federation of Filipino-Chinese Chambers
of Commerce and Industry, Inc. for its "Operation Barrio School" program, with capability and
proven track records in the construction of public school buildings x x x."62 The same allocation was
made available to NGOs in the 2007 and 2009 GAAs under the DepEd Budget. 63 Also, it was in
2007 that the Government Procurement Policy Board64 (GPPB) issued Resolution No. 12-2007
dated June 29, 2007 (GPPB Resolution 12-2007), amending the implementing rules and
regulations65 of RA 9184,66 the Government Procurement Reform Act, to include, as a form of
negotiated procurement,67 the procedure whereby the Procuring Entity68(the implementing agency)
may enter into a memorandum of agreement with an NGO, provided that "an appropriation law or
ordinance earmarks an amount to be specifically contracted out to NGOs." 69
G. Present Administration (2010-Present).
 Differing from previous PDAF Articles but similar to the CDF Articles, the 201170 PDAF Article
included an express statement on lump-sum amounts allocated for individual legislators and the
Vice-President: Representatives were given ₱70 Million each, broken down into ₱40 Million for
"hard projects" and ₱30 Million for "soft projects"; while ₱200 Million was given to each Senator as
well as the Vice-President, with a ₱100 Million allocation each for "hard" and "soft projects."
Likewise, a provision on realignment of funds was included, but with the qualification that it may be
allowed only once. The same provision also allowed the Secretaries of Education, Health, Social
Welfare and Development, Interior and Local Government, Environment and Natural Resources,
Energy, and Public Works and Highways to realign PDAF Funds, with the further conditions that:
(a) realignment is within the same implementing unit and same project category as the original
project, for infrastructure projects; (b) allotment released has not yet been obligated for the original
scope of work, and (c) the request for realignment is with the concurrence of the legislator
concerned.71
In the 201272 and 201373 PDAF Articles, it is stated that the "identification of projects and/or
designation of beneficiaries shall conform to the priority list, standard or design prepared by each
implementing agency (priority list requirement) x x x." However, as practiced, it would still be the
individual legislator who would choose and identify the project from the said priority list. 74
Provisions on legislator allocations75 as well as fund realignment76 were included in the 2012 and
2013 PDAF Articles; but the allocation for the Vice-President, which was pegged at ₱200 Million in
the 2011 GAA, had been deleted. In addition, the 2013 PDAF Article now allowed LGUs to be
identified as implementing agencies if they have the technical capability to implement the
projects.77 Legislators were also allowed to identify programs/projects, except for assistance to
indigent patients and scholarships, outside of his legislative district provided that he secures the
written concurrence of the legislator of the intended outside-district, endorsed by the Speaker of the
House.78 Finally, any realignment of PDAF funds, modification and revision of project identification,
as well as requests for release of funds, were all required to be favorably endorsed by the House
Committee on Appropriations and the Senate Committee on Finance, as the case may be.79
III. History of Presidential Pork Barrel in the Philippines.
While the term "Pork Barrel" has been typically associated with lump-sum, discretionary funds of Members
of Congress, the present cases and the recent controversies on the matter have, however, shown that the
term‘s usage has expanded to include certain funds of the President such as the Malampaya Funds and
the Presidential Social Fund.
On the one hand, the Malampaya Funds was created as a special fund under Section 8 80 of Presidential
Decree No. (PD) 910,81 issued by then President Ferdinand E. Marcos (Marcos) on March 22, 1976. In
enacting the said law, Marcos recognized the need to set up a special fund to help intensify, strengthen,
and consolidate government efforts relating to the exploration, exploitation, and development of indigenous
energy resources vital to economic growth.82 Due to the energy-related activities of the government in the
Malampaya natural gas field in Palawan, or the "Malampaya Deep Water Gas-to-Power Project",83 the
special fund created under PD 910 has been currently labeled as Malampaya Funds.
On the other hand the Presidential Social Fund was created under Section 12, Title IV 84 of PD 1869,85 or
the Charter of the Philippine Amusement and Gaming Corporation (PAGCOR). PD 1869 was similarly
issued by Marcos on July 11, 1983. More than two (2) years after, he amended PD 1869 and accordingly
issued PD 1993 on October 31, 1985,86 amending Section 1287 of the former law. As it stands, the
Presidential Social Fund has been described as a special funding facility managed and administered by the
Presidential Management Staff through which the President provides direct assistance to priority programs
and projects not funded under the regular budget. It is sourced from the share of the government in the
aggregate gross earnings of PAGCOR.88
IV. Controversies in the Philippines.
Over the decades, "pork" funds in the Philippines have increased tremendously, 89 owing in no small part to
previous Presidents who reportedly used the "Pork Barrel" in order to gain congressional support. 90 It was
in 1996 when the first controversy surrounding the "Pork Barrel" erupted. Former Marikina City
Representative Romeo Candazo (Candazo), then an anonymous source, "blew the lid on the huge sums of
government money that regularly went into the pockets of legislators in the form of kickbacks."91 He said
that "the kickbacks were ‘SOP‘ (standard operating procedure) among legislators and ranged from a low 19
percent to a high 52 percent of the cost of each project, which could be anything from dredging, rip rapping,
sphalting, concreting, and construction of school buildings."92 "Other sources of kickbacks that Candazo
identified were public funds intended for medicines and textbooks. A few days later, the tale of the money
trail became the banner story of the Philippine Daily Inquirer issue of August 13, 1996, accompanied by an
illustration of a roasted pig."93 "The publication of the stories, including those about congressional initiative
allocations of certain lawmakers, including ₱3.6 Billion for a Congressman, sparked public outrage."94
Thereafter, or in 2004, several concerned citizens sought the nullification of the PDAF as enacted in the
2004 GAA for being unconstitutional. Unfortunately, for lack of "any pertinent evidentiary support that illegal
misuse of PDAF in the form of kickbacks has become a common exercise of unscrupulous Members of
Congress," the petition was dismissed.95
Recently, or in July of the present year, the National Bureau of Investigation (NBI) began its probe into
allegations that "the government has been defrauded of some ₱10 Billion over the past 10 years by a
syndicate using funds from the pork barrel of lawmakers and various government agencies for scores of
ghost projects."96 The investigation was spawned by sworn affidavits of six (6) whistle-blowers who
declared that JLN Corporation – "JLN" standing for Janet Lim Napoles (Napoles) – had swindled billions of
pesos from the public coffers for "ghost projects" using no fewer than 20 dummy NGOs for an entire
decade. While the NGOs were supposedly the ultimate recipients of PDAF funds, the whistle-blowers
declared that the money was diverted into Napoles‘ private accounts.97 Thus, after its investigation on the
Napoles controversy, criminal complaints were filed before the Office of the Ombudsman, charging five (5)
lawmakers for Plunder, and three (3) other lawmakers for Malversation, Direct Bribery, and Violation of the
Anti-Graft and Corrupt Practices Act. Also recommended to be charged in the complaints are some of the
lawmakers‘ chiefs -of-staff or representatives, the heads and other officials of three (3) implementing
agencies, and the several presidents of the NGOs set up by Napoles.98
On August 16, 2013, the Commission on Audit (CoA) released the results of a three-year audit
investigation99covering the use of legislators' PDAF from 2007 to 2009, or during the last three (3) years of
the Arroyo administration. The purpose of the audit was to determine the propriety of releases of funds
under PDAF and the Various Infrastructures including Local Projects (VILP) 100 by the DBM, the application
of these funds and the implementation of projects by the appropriate implementing agencies and several
government-owned-and-controlled corporations (GOCCs).101 The total releases covered by the audit
amounted to ₱8.374 Billion in PDAF and ₱32.664 Billion in VILP, representing 58% and 32%, respectively,
of the total PDAF and VILP releases that were found to have been made nationwide during the audit
period.102 Accordingly, the Co A‘s findings contained in its Report No. 2012-03 (CoA Report), entitled
"Priority Development Assistance Fund (PDAF) and Various Infrastructures including Local Projects
(VILP)," were made public, the highlights of which are as follows: 103
● Amounts released for projects identified by a considerable number of legislators significantly
exceeded their respective allocations.
● Amounts were released for projects outside of legislative districts of sponsoring members of the
Lower House.
● Total VILP releases for the period exceeded the total amount appropriated under the 2007 to
2009 GAAs.
● Infrastructure projects were constructed on private lots without these having been turned over to
the government.
● Significant amounts were released to implementing agencies without the latter‘s endorsement
and without considering their mandated functions, administrative and technical capabilities to
implement projects.
● Implementation of most livelihood projects was not undertaken by the implementing agencies
themselves but by NGOs endorsed by the proponent legislators to which the Funds were
transferred.
● The funds were transferred to the NGOs in spite of the absence of any appropriation law or
ordinance.
● Selection of the NGOs were not compliant with law and regulations.
● Eighty-Two (82) NGOs entrusted with implementation of seven hundred seventy two (772)
projects amount to ₱6.156 Billion were either found questionable, or submitted
 questionable/spurious documents, or failed to liquidate in whole or in part their utilization of the
Funds.
● Procurement by the NGOs, as well as some implementing agencies, of goods and services
reportedly used in the projects were not compliant with law.
As for the "Presidential Pork Barrel", whistle-blowers alleged that" at least ₱900 Million from royalties in the
operation of the Malampaya gas project off Palawan province intended for agrarian reform beneficiaries
has gone into a dummy NGO."104 According to incumbent CoA Chairperson Maria Gracia Pulido Tan (CoA
Chairperson), the CoA is, as of this writing, in the process of preparing "one consolidated report" on the
Malampaya Funds.105
V. The Procedural Antecedents.
Spurred in large part by the findings contained in the CoA Report and the Napoles controversy, several
petitions were lodged before the Court similarly seeking that the "Pork Barrel System" be declared
unconstitutional. To recount, the relevant procedural antecedents in these cases are as follows:
On August 28, 2013, petitioner Samson S. Alcantara (Alcantara), President of the Social Justice Society, filed a
Petition for Prohibition of even date under Rule 65 of the Rules of Court (Alcantara Petition), seeking that the "Pork
Barrel System" be declared unconstitutional, and a writ of prohibition be issued permanently restraining
respondents Franklin M. Drilon and Feliciano S. Belmonte, Jr., in their respective capacities as the incumbent
Senate President and Speaker of the House of Representatives, from further taking any steps to enact legislation
appropriating funds for the "Pork Barrel System," in whatever form and by whatever name it may be called, and
from approving further releases pursuant thereto.106 The Alcantara Petition was docketed as G.R. No. 208493.
On September 3, 2013, petitioners Greco Antonious Beda B. Belgica, Jose L. Gonzalez, Reuben M. Abante,
Quintin Paredes San Diego (Belgica, et al.), and Jose M. Villegas, Jr. (Villegas) filed an Urgent Petition For
Certiorari and Prohibition With Prayer For The Immediate Issuance of Temporary Restraining Order (TRO) and/or
Writ of Preliminary Injunction dated August 27, 2013 under Rule 65 of the Rules of Court (Belgica Petition), seeking
that the annual "Pork Barrel System," presently embodied in the provisions of the GAA of 2013 which provided for
the 2013 PDAF, and the Executive‘s lump-sum, discretionary funds, such as the Malampaya Funds and the
Presidential Social Fund,107 be declared unconstitutional and null and void for being acts constituting grave abuse
of discretion. Also, they pray that the Court issue a TRO against respondents Paquito N. Ochoa, Jr., Florencio B.
Abad (Secretary Abad) and Rosalia V. De Leon, in their respective capacities as the incumbent Executive
Secretary, Secretary of the Department of Budget and Management (DBM), and National Treasurer, or their
agents, for them to immediately cease any expenditure under the aforesaid funds. Further, they pray that the Court
order the foregoing respondents to release to the CoA and to the public: (a) "the complete schedule/list of
legislators who have availed of their PDAF and VILP from the years 2003 to 2013, specifying the use of the funds,
the project or activity and the recipient entities or individuals, and all pertinent data thereto"; and (b) "the use of the
Executive‘s lump-sum, discretionary funds, including the proceeds from the x x x Malampaya Funds and
remittances from the PAGCOR x x x from 2003 to 2013, specifying the x x x project or activity and the recipient
entities or individuals, and all pertinent data thereto."108 Also, they pray for the "inclusion in budgetary deliberations
with the Congress of all presently off-budget, lump-sum, discretionary funds including, but not limited to, proceeds
from the Malampaya Funds and remittances from the PAGCOR."109 The Belgica Petition was docketed as G.R. No.
208566.110
Lastly, on September 5, 2013, petitioner Pedrito M. Nepomuceno (Nepomuceno), filed a Petition dated August 23,
2012 (Nepomuceno Petition), seeking that the PDAF be declared unconstitutional, and a cease and desist order be
issued restraining President Benigno Simeon S. Aquino III (President Aquino) and Secretary Abad from releasing
such funds to Members of Congress and, instead, allow their release to fund priority projects identified and
approved by the Local Development Councils in consultation with the executive departments, such as the DPWH,
the Department of Tourism, the Department of Health, the Department of Transportation, and Communication and
the National Economic Development Authority.111 The Nepomuceno Petition was docketed as UDK-14951.112
On September 10, 2013, the Court issued a Resolution of even date (a) consolidating all cases; (b) requiring public
respondents to comment on the consolidated petitions; (c) issuing a TRO (September 10, 2013 TRO) enjoining the
DBM, National Treasurer, the Executive Secretary, or any of the persons acting under their authority from releasing
(1) the remaining PDAF allocated to Members of Congress under the GAA of 2013, and (2) Malampaya Funds
under the phrase "for such other purposes as may be hereafter directed by the President" pursuant to Section 8 of
PD 910 but not for the purpose of "financing energy resource development and exploitation programs and projects
of the government‖ under the same provision; and (d) setting the consolidated cases for Oral Arguments on
October 8, 2013.
On September 23, 2013, the Office of the Solicitor General (OSG) filed a Consolidated Comment (Comment) of
even date before the Court, seeking the lifting, or in the alternative, the partial lifting with respect to educational and
medical assistance purposes, of the Court‘s September 10, 2013 TRO, and that the consolidated petitions be
dismissed for lack of merit.113
On September 24, 2013, the Court issued a Resolution of even date directing petitioners to reply to the Comment.
Petitioners, with the exception of Nepomuceno, filed their respective replies to the Comment: (a) on September 30,
2013, Villegas filed a separate Reply dated September 27, 2013 (Villegas Reply); (b) on October 1, 2013, Belgica,
et al. filed a Reply dated September 30, 2013 (Belgica Reply); and (c) on October 2, 2013, Alcantara filed a Reply
dated October 1, 2013.
On October 1, 2013, the Court issued an Advisory providing for the guidelines to be observed by the parties for the
Oral Arguments scheduled on October 8, 2013. In view of the technicality of the issues material to the present
cases, incumbent Solicitor General Francis H. Jardeleza (Solicitor General) was directed to bring with him during
the Oral Arguments representative/s from the DBM and Congress who would be able to competently and
completely answer questions related to, among others, the budgeting process and its implementation. Further, the
CoA Chairperson was appointed as amicus curiae and thereby requested to appear before the Court during the
Oral Arguments.
On October 8 and 10, 2013, the Oral Arguments were conducted. Thereafter, the Court directed the parties to
submit their respective memoranda within a period of seven (7) days, or until October 17, 2013, which the parties
subsequently did.
The Issues Before the Court
Based on the pleadings, and as refined during the Oral Arguments, the following are the main issues for the Court‘s
resolution:
I. Procedural Issues.
Whether or not (a) the issues raised in the consolidated petitions involve an actual and justiciable controversy; (b)
the issues raised in the consolidated petitions are matters of policy not subject to judicial review; (c) petitioners
have legal standing to sue; and (d) the Court‘s Decision dated August 19, 1994 in G.R. Nos. 113105, 113174,
113766, and 113888, entitled "Philippine Constitution Association v. Enriquez" 114 (Philconsa) and Decision dated
April 24, 2012 in G.R. No. 164987, entitled "Lawyers Against Monopoly and Poverty v. Secretary of Budget and
Management"115 (LAMP) bar the re-litigatio n of the issue of constitutionality of the "Pork Barrel System" under the
principles of res judicata and stare decisis.
II. Substantive Issues on the "Congressional Pork Barrel."
Whether or not the 2013 PDAF Article and all other Congressional Pork Barrel Laws similar thereto are
unconstitutional considering that they violate the principles of/constitutional provisions on (a) separation of powers;
(b) non-delegability of legislative power; (c) checks and balances; (d) accountability; (e) political dynasties; and (f)
local autonomy.
III. Substantive Issues on the "Presidential Pork Barrel."
Whether or not the phrases (a) "and for such other purposes as may be hereafter directed by the President" under
Section 8 of PD 910,116 relating to the Malampaya Funds, and (b) "to finance the priority infrastructure development
projects and to finance the restoration of damaged or destroyed facilities due to calamities, as may be directed and
authorized by the Office of the President of the Philippines" under Section 12 of PD 1869, as amended by PD 1993,
relating to the Presidential Social Fund, are unconstitutional insofar as they constitute undue delegations of
legislative power.
These main issues shall be resolved in the order that they have been stated. In addition, the Court shall also tackle
certain ancillary issues as prompted by the present cases.
The Court’s Ruling
The petitions are partly granted.
I. Procedural Issues.
The prevailing rule in constitutional litigation is that no question involving the constitutionality or validity of a law or
governmental act may be heard and decided by the Court unless there is compliance with the legal requisites for
judicial inquiry,117 namely: (a) there must be an actual case or controversy calling for the exercise of judicial power;
(b) the person challenging the act must have the standing to question the validity of the subject act or issuance; (c)
the question of constitutionality must be raised at the earliest opportunity ; and (d) the issue of constitutionality must
be the very lis mota of the case.118 Of these requisites, case law states that the first two are the most
important119and, therefore, shall be discussed forthwith.
A. Existence of an Actual Case or Controversy.
By constitutional fiat, judicial power operates only when there is an actual case or controversy.120 This is embodied
in Section 1, Article VIII of the 1987 Constitution which pertinently states that "judicial power includes the duty of the
courts of justice to settle actual controversies involving rights which are legally demandable and enforceable x x x."
Jurisprudence provides that an actual case or controversy is one which "involves a conflict of legal rights, an
assertion of opposite legal claims, susceptible of judicial resolution as distinguished from a hypothetical or abstract
difference or dispute.121 In other words, "there must be a contrariety of legal rights that can be interpreted and
enforced on the basis of existing law and jurisprudence."122 Related to the requirement of an actual case or
controversy is the requirement of "ripeness," meaning that the questions raised for constitutional scrutiny are
already ripe for adjudication. "A question is ripe for adjudication when the act being challenged has had a direct
adverse effect on the individual challenging it. It is a prerequisite that something had then been accomplished or
performed by either branch before a court may come into the picture, and the petitioner must allege the existence
of an immediate or threatened injury to itself as a result of the challenged action."123 "Withal, courts will decline to
pass upon constitutional issues through advisory opinions, bereft as they are of authority to resolve hypothetical or
moot questions."124
Based on these principles, the Court finds that there exists an actual and justiciable controversy in these cases.
The requirement of contrariety of legal rights is clearly satisfied by the antagonistic positions of the parties on the
constitutionality of the "Pork Barrel System." Also, the questions in these consolidated cases are ripe for
adjudication since the challenged funds and the provisions allowing for their utilization – such as the 2013 GAA for
the PDAF, PD 910 for the Malampaya Funds and PD 1869, as amended by PD 1993, for the Presidential Social
Fund – are currently existing and operational; hence, there exists an immediate or threatened injury to petitioners
as a result of the unconstitutional use of these public funds.
As for the PDAF, the Court must dispel the notion that the issues related thereto had been rendered moot and
academic by the reforms undertaken by respondents. A case becomes moot when there is no more actual
controversy between the parties or no useful purpose can be served in passing upon the merits. 125 Differing from
this description, the Court observes that respondents‘ proposed line-item budgeting scheme would not terminate
the controversy nor diminish the useful purpose for its resolution since said reform is geared towards the 2014
budget, and not the 2013 PDAF Article which, being a distinct subject matter, remains legally effective and existing.
Neither will the President‘s declaration that he had already "abolished the PDAF" render the issues on PDAF moot
precisely because the Executive branch of government has no constitutional authority to nullify or annul its legal
existence. By constitutional design, the annulment or nullification of a law may be done either by Congress, through
the passage of a repealing law, or by the Court, through a declaration of unconstitutionality. Instructive on this point
is the following exchange between Associate Justice Antonio T. Carpio (Justice Carpio) and the Solicitor General
during the Oral Arguments:126
Justice Carpio: The President has taken an oath to faithfully execute the law, 127 correct? Solicitor General
Jardeleza: Yes, Your Honor.
Justice Carpio: And so the President cannot refuse to implement the General Appropriations Act, correct?
Solicitor General Jardeleza: Well, that is our answer, Your Honor. In the case, for example of the PDAF, the
President has a duty to execute the laws but in the face of the outrage over PDAF, the President was saying, "I am
not sure that I will continue the release of the soft projects," and that started, Your Honor. Now, whether or not that
… (interrupted)
Justice Carpio: Yeah. I will grant the President if there are anomalies in the project, he has the power to stop the
releases in the meantime, to investigate, and that is Section 38 of Chapter 5 of Book 6 of the Revised
Administrative Code128 x x x. So at most the President can suspend, now if the President believes that the PDAF is
unconstitutional, can he just refuse to implement it?
Solicitor General Jardeleza: No, Your Honor, as we were trying to say in the specific case of the PDAF because of
the CoA Report, because of the reported irregularities and this Court can take judicial notice, even outside, outside
of the COA Report, you have the report of the whistle-blowers, the President was just exercising precisely the duty
….
xxxx
Justice Carpio: Yes, and that is correct. You‘ve seen the CoA Report, there are anomalies, you stop and
investigate, and prosecute, he has done that. But, does that mean that PDAF has been repealed?
Solicitor General Jardeleza: No, Your Honor x x x.
xxxx
Justice Carpio: So that PDAF can be legally abolished only in two (2) cases. Congress passes a law to repeal it, or
this Court declares it unconstitutional, correct?
Solictor General Jardeleza: Yes, Your Honor.
Justice Carpio: The President has no power to legally abolish PDAF. (Emphases supplied)
Even on the assumption of mootness, jurisprudence, nevertheless, dictates that "the moot and academic‘ principle
is not a magical formula that can automatically dissuade the Court in resolving a case." The Court will decide
cases, otherwise moot, if: first, there is a grave violation of the Constitution; second, the exceptional character of
the situation and the paramount public interest is involved; third, when the constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public; and fourth, the case is capable of
repetition yet evading review.129
The applicability of the first exception is clear from the fundamental posture of petitioners – they essentially allege
grave violations of the Constitution with respect to, inter alia, the principles of separation of powers, non-delegability
of legislative power, checks and balances, accountability and local autonomy.
The applicability of the second exception is also apparent from the nature of the interests involved
– the constitutionality of the very system within which significant amounts of public funds have been and continue to
be utilized and expended undoubtedly presents a situation of exceptional character as well as a matter of
paramount public interest. The present petitions, in fact, have been lodged at a time when the system‘s flaws have
never before been magnified. To the Court‘s mind, the coalescence of the CoA Report, the accounts of numerous
whistle-blowers, and the government‘s own recognition that reforms are needed "to address the reported abuses of
the PDAF"130 demonstrates a prima facie pattern of abuse which only underscores the importance of the matter. It
is also by this finding that the Court finds petitioners‘ claims as not merely theorized, speculative or hypothetical. Of
note is the weight accorded by the Court to the findings made by the CoA which is the constitutionally-mandated
audit arm of the government. In Delos Santos v. CoA,131 a recent case wherein the Court upheld the CoA‘s
disallowance of irregularly disbursed PDAF funds, it was emphasized that:
The COA is endowed with enough latitude to determine, prevent, and disallow irregular, unnecessary, excessive,
extravagant or unconscionable expenditures of government funds. It is tasked to be vigilant and conscientious in
safeguarding the proper use of the government's, and ultimately the people's, property. The exercise of its general
audit power is among the constitutional mechanisms that gives life to the check and balance system inherent in our
form of government.
It is the general policy of the Court to sustain the decisions of administrative authorities, especially one which is
constitutionally-created, such as the CoA, not only on the basis of the doctrine of separation of powers but also for
their presumed expertise in the laws they are entrusted to enforce. Findings of administrative agencies are
accorded not only respect but also finality when the decision and order are not tainted with unfairness or
arbitrariness that would amount to grave abuse of discretion. It is only when the CoA has acted without or in excess
of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, that this Court entertains
a petition questioning its rulings. x x x. (Emphases supplied)
Thus, if only for the purpose of validating the existence of an actual and justiciable controversy in these cases, the
Court deems the findings under the CoA Report to be sufficient.
The Court also finds the third exception to be applicable largely due to the practical need for a definitive ruling on
the system‘s constitutionality. As disclosed during the Oral Arguments, the CoA Chairperson estimates that
thousands of notices of disallowances will be issued by her office in connection with the findings made in the CoA
Report. In this relation, Associate Justice Marvic Mario Victor F. Leonen (Justice Leonen) pointed out that all of
these would eventually find their way to the courts.132 Accordingly, there is a compelling need to formulate
controlling principles relative to the issues raised herein in order to guide the bench, the bar, and the public, not just
for the expeditious resolution of the anticipated disallowance cases, but more importantly, so that the government
may be guided on how public funds should be utilized in accordance with constitutional principles.
Finally, the application of the fourth exception is called for by the recognition that the preparation and passage of
the national budget is, by constitutional imprimatur, an affair of annual occurrence.133 The relevance of the issues
before the Court does not cease with the passage of a "PDAF -free budget for 2014."134 The evolution of the "Pork
Barrel System," by its multifarious iterations throughout the course of history, lends a semblance of truth to
petitioners‘ claim that "the same dog will just resurface wearing a different collar."135 In Sanlakas v. Executive
Secretary,136 the government had already backtracked on a previous course of action yet the Court used the
"capable of repetition but evading review" exception in order "to prevent similar questions from re-
emerging."137 The situation similarly holds true to these cases. Indeed, the myriad of issues underlying the manner
in which certain public funds are spent, if not resolved at this most opportune time, are capable of repetition and
hence, must not evade judicial review.
B. Matters of Policy: the Political Question Doctrine.
The "limitation on the power of judicial review to actual cases and controversies‖ carries the assurance that "the
courts will not intrude into areas committed to the other branches of government." 138 Essentially, the foregoing
limitation is a restatement of the political question doctrine which, under the classic formulation of Baker v.
Carr,139applies when there is found, among others, "a textually demonstrable constitutional commitment of the
issue to a coordinate political department," "a lack of judicially discoverable and manageable standards for
resolving it" or "the impossibility of deciding without an initial policy determination of a kind clearly for non- judicial
discretion." Cast against this light, respondents submit that the "the political branches are in the best position not
only to perform budget-related reforms but also to do them in response to the specific demands of their
constituents" and, as such, "urge the Court not to impose a solution at this stage."140
The Court must deny respondents‘ submission.
Suffice it to state that the issues raised before the Court do not present political but legal questions which are within
its province to resolve. A political question refers to "those questions which, under the Constitution, are to be
decided by the people in their sovereign capacity, or in regard to which full discretionary authority has been
delegated to the Legislature or executive branch of the Government. It is concerned with issues dependent upon
the wisdom, not legality, of a particular measure."141 The intrinsic constitutionality of the "Pork Barrel System" is not
an issue dependent upon the wisdom of the political branches of government but rather a legal one which the
Constitution itself has commanded the Court to act upon. Scrutinizing the contours of the system along
constitutional lines is a task that the political branches of government are incapable of rendering precisely because
it is an exercise of judicial power. More importantly, the present Constitution has not only vested the Judiciary the
right to exercise judicial power but essentially makes it a duty to proceed therewith. Section 1, Article VIII of the
1987 Constitution cannot be any clearer: "The judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law. It includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of
the Government." In Estrada v. Desierto,142 the expanded concept of judicial power under the 1987 Constitution
and its effect on the political question doctrine was explained as follows: 143
To a great degree, the 1987 Constitution has narrowed the reach of the political question doctrine when it
expanded the power of judicial review of this court not only to settle actual controversies involving rights which are
legally demandable and enforceable but also to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of government.
Heretofore, the judiciary has focused on the "thou shalt not's" of the Constitution directed against the exercise of its
jurisdiction. With the new provision, however, courts are given a greater prerogative to determine what it can do to
prevent grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of government. Clearly, the new provision did not just grant the Court power of doing nothing. x x x
(Emphases supplied)
It must also be borne in mind that ― when the judiciary mediates to allocate constitutional boundaries, it does not
assert any superiority over the other departments; does not in reality nullify or invalidate an act of the legislature or
the executive, but only asserts the solemn and sacred obligation assigned to it by the Constitution." 144 To a great
extent, the Court is laudably cognizant of the reforms undertaken by its co-equal branches of government. But it is
by constitutional force that the Court must faithfully perform its duty. Ultimately, it is the Court‘s avowed intention
that a resolution of these cases would not arrest or in any manner impede the endeavors of the two other branches
but, in fact, help ensure that the pillars of change are erected on firm constitutional grounds. After all, it is in the
best interest of the people that each great branch of government, within its own sphere, contributes its share
towards achieving a holistic and genuine solution to the problems of society. For all these reasons, the Court
cannot heed respondents‘ plea for judicial restraint.
C. Locus Standi.
"The gist of the question of standing is whether a party alleges such personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the
court depends for illumination of difficult constitutional questions. Unless a person is injuriously affected in any of
his constitutional rights by the operation of statute or ordinance, he has no standing." 145
Petitioners have come before the Court in their respective capacities as citizen-taxpayers and accordingly, assert
that they "dutifully contribute to the coffers of the National Treasury."146 Clearly, as taxpayers, they possess the
requisite standing to question the validity of the existing "Pork Barrel System" under which the taxes they pay have
been and continue to be utilized. It is undeniable that petitioners, as taxpayers, are bound to suffer from the
unconstitutional usage of public funds, if the Court so rules. Invariably, taxpayers have been allowed to sue where
there is a claim that public funds are illegally disbursed or that public money is being deflected to any improper
purpose, or that public funds are wasted through the enforcement of an invalid or unconstitutional law, 147 as in
these cases.
Moreover, as citizens, petitioners have equally fulfilled the standing requirement given that the issues they have
raised may be classified as matters "of transcendental importance, of overreaching significance to society, or of
paramount public interest."148 The CoA Chairperson‘s statement during the Oral Arguments that the present
controversy involves "not merely a systems failure" but a "complete breakdown of controls" 149 amplifies, in addition
to the matters above-discussed, the seriousness of the issues involved herein. Indeed, of greater import than the
damage caused by the illegal expenditure of public funds is the mortal wound inflicted upon the fundamental law by
the enforcement of an invalid statute.150 All told, petitioners have sufficient locus standi to file the instant cases.
D. Res Judicata and Stare Decisis.
Res judicata (which means a "matter adjudged") and stare decisis non quieta et movere (or simply, stare decisis
which means "follow past precedents and do not disturb what has been settled") are general procedural law
principles which both deal with the effects of previous but factually similar dispositions to subsequent cases. For the
cases at bar, the Court examines the applicability of these principles in relation to its prior rulings in Philconsa and
LAMP.
The focal point of res judicata is the judgment. The principle states that a judgment on the merits in a previous case
rendered by a court of competent jurisdiction would bind a subsequent case if, between the first and second
actions, there exists an identity of parties, of subject matter, and of causes of action. 151 This required identity is not,
however, attendant hereto since Philconsa and LAMP, respectively involved constitutional challenges against the
1994 CDF Article and 2004 PDAF Article, whereas the cases at bar call for a broader constitutional scrutiny of the
entire "Pork Barrel System." Also, the ruling in LAMP is essentially a dismissal based on a procedural technicality –
and, thus, hardly a judgment on the merits – in that petitioners therein failed to present any "convincing proof x x x
showing that, indeed, there were direct releases of funds to the Members of Congress, who actually spend them
according to their sole discretion" or "pertinent evidentiary support to demonstrate the illegal misuse of PDAF in the
form of kickbacks and has become a common exercise of unscrupulous Members of Congress." As such, the Court
up held, in view of the presumption of constitutionality accorded to every law, the 2004 PDAF Article, and saw "no
need to review or reverse the standing pronouncements in the said case." Hence, for the foregoing reasons, the res
judicata principle, insofar as the Philconsa and LAMP cases are concerned, cannot apply.
On the other hand, the focal point of stare decisis is the doctrine created. The principle, entrenched under Article
8152 of the Civil Code, evokes the general rule that, for the sake of certainty, a conclusion reached in one case
should be doctrinally applied to those that follow if the facts are substantially the same, even though the parties
may be different. It proceeds from the first principle of justice that, absent any powerful countervailing
considerations, like cases ought to be decided alike. Thus, where the same questions relating to the same event
have been put forward by the parties similarly situated as in a previous case litigated and decided by a competent
court, the rule of stare decisis is a bar to any attempt to re-litigate the same issue.153
Philconsa was the first case where a constitutional challenge against a Pork Barrel provision, i.e., the 1994 CDF
Article, was resolved by the Court. To properly understand its context, petitioners‘ posturing was that "the power
given to the Members of Congress to propose and identify projects and activities to be funded by the CDF is an
encroachment by the legislature on executive power, since said power in an appropriation act is in implementation
of the law" and that "the proposal and identification of the projects do not involve the making of laws or the repeal
and amendment thereof, the only function given to the Congress by the Constitution." 154 In deference to the
foregoing submissions, the Court reached the following main conclusions: one, under the Constitution, the power of
appropriation, or the "power of the purse," belongs to Congress; two, the power of appropriation carries with it the
power to specify the project or activity to be funded under the appropriation law and it can be detailed and as broad
as Congress wants it to be; and, three, the proposals and identifications made by Members of Congress are merely
recommendatory. At once, it is apparent that the Philconsa resolution was a limited response to a separation of
powers problem, specifically on the propriety of conferring post-enactment identification authority to Members of
Congress. On the contrary, the present cases call for a more holistic examination of (a) the inter-relation between
the CDF and PDAF Articles with each other, formative as they are of the entire "Pork Barrel System" as well as (b)
the intra-relation of post-enactment measures contained within a particular CDF or PDAF Article, including not only
those related to the area of project identification but also to the areas of fund release and realignment. The
complexity of the issues and the broader legal analyses herein warranted may be, therefore, considered as a
powerful countervailing reason against a wholesale application of the stare decisis principle.
In addition, the Court observes that the Philconsa ruling was actually riddled with inherent constitutional
inconsistencies which similarly countervail against a full resort to stare decisis. As may be deduced from the main
conclusions of the case, Philconsa‘s fundamental premise in allowing Members of Congress to propose and identify
of projects would be that the said identification authority is but an aspect of the power of appropriation which has
been constitutionally lodged in Congress. From this premise, the contradictions may be easily seen. If the authority
to identify projects is an aspect of appropriation and the power of appropriation is a form of legislative power
thereby lodged in Congress, then it follows that: (a) it is Congress which should exercise such authority, and not its
individual Members; (b) such authority must be exercised within the prescribed procedure of law passage and,
hence, should not be exercised after the GAA has already been passed; and (c) such authority, as embodied in the
GAA, has the force of law and, hence, cannot be merely recommendatory. Justice Vitug‘s Concurring Opinion in
the same case sums up the Philconsa quandary in this wise: "Neither would it be objectionable for Congress, by
law, to appropriate funds for such specific projects as it may be minded; to give that authority, however, to the
individual members of Congress in whatever guise, I am afraid, would be constitutionally impermissible." As the
Court now largely benefits from hindsight and current findings on the matter, among others, the CoA Report, the
Court must partially abandon its previous ruling in Philconsa insofar as it validated the post-enactment identification
authority of Members of Congress on the guise that the same was merely recommendatory. This postulate raises
serious constitutional inconsistencies which cannot be simply excused on the ground that such mechanism is
"imaginative as it is innovative." Moreover, it must be pointed out that the recent case of Abakada Guro Party List v.
Purisima155(Abakada) has effectively overturned Philconsa‘s allowance of post-enactment legislator participation in
view of the separation of powers principle. These constitutional inconsistencies and the Abakada rule will be
discussed in greater detail in the ensuing section of this Decision.
As for LAMP, suffice it to restate that the said case was dismissed on a procedural technicality and, hence, has not
set any controlling doctrine susceptible of current application to the substantive issues in these cases. In fine, stare
decisis would not apply.
II. Substantive Issues.
A. Definition of Terms.
Before the Court proceeds to resolve the substantive issues of these cases, it must first define the terms "Pork
Barrel System," "Congressional Pork Barrel," and "Presidential Pork Barrel" as they are essential to the ensuing
discourse.
Petitioners define the term "Pork Barrel System" as the "collusion between the Legislative and Executive branches
of government to accumulate lump-sum public funds in their offices with unchecked discretionary powers to
determine its distribution as political largesse."156 They assert that the following elements make up the Pork Barrel
System: (a) lump-sum funds are allocated through the appropriations process to an individual officer; (b) the officer
is given sole and broad discretion in determining how the funds will be used or expended; (c) the guidelines on how
to spend or use the funds in the appropriation are either vague, overbroad or inexistent; and (d) projects funded are
intended to benefit a definite constituency in a particular part of the country and to help the political careers of the
disbursing official by yielding rich patronage benefits.157 They further state that the Pork Barrel System is comprised
of two (2) kinds of discretionary public funds: first, the Congressional (or Legislative) Pork Barrel, currently known
as the PDAF;158 and, second, the Presidential (or Executive) Pork Barrel, specifically, the Malampaya Funds under
PD 910 and the Presidential Social Fund under PD 1869, as amended by PD 1993. 159
Considering petitioners‘ submission and in reference to its local concept and legal history, the Court defines the
Pork Barrel System as the collective body of rules and practices that govern the manner by which lump-sum,
discretionary funds, primarily intended for local projects, are utilized through the respective participations of the
Legislative and Executive branches of government, including its members. The Pork Barrel System involves two (2)
kinds of lump-sum discretionary funds:
First, there is the Congressional Pork Barrel which is herein defined as a kind of lump-sum, discretionary fund
wherein legislators, either individually or collectively organized into committees, are able to effectively control
certain aspects of the fund’s utilization through various post-enactment measures and/or practices. In particular,
petitioners consider the PDAF, as it appears under the 2013 GAA, as Congressional Pork Barrel since it is, inter
alia, a post-enactment measure that allows individual legislators to wield a collective power; 160 and
Second, there is the Presidential Pork Barrel which is herein defined as a kind of lump-sum, discretionary fund
which allows the President to determine the manner of its utilization. For reasons earlier stated,161 the Court shall
delimit the use of such term to refer only to the Malampaya Funds and the Presidential Social Fund.
With these definitions in mind, the Court shall now proceed to discuss the substantive issues of these cases.
B. Substantive Issues on the Congressional Pork Barrel.
1. Separation of Powers.
a. Statement of Principle.
The principle of separation of powers refers to the constitutional demarcation of the three fundamental powers of
government. In the celebrated words of Justice Laurel in Angara v. Electoral Commission, 162 it means that the
"Constitution has blocked out with deft strokes and in bold lines, allotment of power to the executive, the legislative
and the judicial departments of the government."163 To the legislative branch of government, through
Congress,164belongs the power to make laws; to the executive branch of government, through the
President,165 belongs the power to enforce laws; and to the judicial branch of government, through the
Court,166 belongs the power to interpret laws. Because the three great powers have been, by constitutional design,
ordained in this respect, "each department of the government has exclusive cognizance of matters within its
jurisdiction, and is supreme within its own sphere." 167 Thus, "the legislature has no authority to execute or construe
the law, the executive has no authority to make or construe the law, and the judiciary has no power to make or
execute the law."168 The principle of separation of powers and its concepts of autonomy and independence stem
from the notion that the powers of government must be divided to avoid concentration of these powers in any one
branch; the division, it is hoped, would avoid any single branch from lording its power over the other branches or
the citizenry.169 To achieve this purpose, the divided power must be wielded by co-equal branches of government
that are equally capable of independent action in exercising their respective mandates. Lack of independence
would result in the inability of one branch of government to check the arbitrary or self-interest assertions of another
or others.170
Broadly speaking, there is a violation of the separation of powers principle when one branch of government unduly
encroaches on the domain of another. US Supreme Court decisions instruct that the principle of separation of
powers may be violated in two (2) ways: firstly, "one branch may interfere impermissibly with the other’s
performance of its constitutionally assigned function";171 and "alternatively, the doctrine may be violated when one
branch assumes a function that more properly is entrusted to another."172 In other words, there is a violation of the
principle when there is impermissible (a) interference with and/or (b) assumption of another department‘s functions.
The enforcement of the national budget, as primarily contained in the GAA, is indisputably a function both
constitutionally assigned and properly entrusted to the Executive branch of government. In Guingona, Jr. v. Hon.
Carague173 (Guingona, Jr.), the Court explained that the phase of budget execution "covers the various operational
aspects of budgeting" and accordingly includes "the evaluation of work and financial plans for individual activities,"
the "regulation and release of funds" as well as all "other related activities" that comprise the budget execution
cycle.174 This is rooted in the principle that the allocation of power in the three principal branches of government is a
grant of all powers inherent in them.175 Thus, unless the Constitution provides otherwise, the Executive department
should exclusively exercise all roles and prerogatives which go into the implementation of the national budget as
provided under the GAA as well as any other appropriation law.
In view of the foregoing, the Legislative branch of government, much more any of its members, should not cross
over the field of implementing the national budget since, as earlier stated, the same is properly the domain of the
Executive. Again, in Guingona, Jr., the Court stated that "Congress enters the picture when it deliberates or acts on
the budget proposals of the President. Thereafter, Congress, "in the exercise of its own judgment and wisdom,
formulates an appropriation act precisely following the process established by the Constitution, which specifies that
no money may be paid from the Treasury except in accordance with an appropriation made by law." Upon approval
and passage of the GAA, Congress‘ law -making role necessarily comes to an end and from there the Executive‘s
role of implementing the national budget begins. So as not to blur the constitutional boundaries between them,
Congress must "not concern it self with details for implementation by the Executive."176
The foregoing cardinal postulates were definitively enunciated in Abakada where the Court held that "from the
moment the law becomes effective, any provision of law that empowers Congress or any of its members to play
any role in the implementation or enforcement of the law violates the principle of separation of powers and is thus
unconstitutional."177 It must be clarified, however, that since the restriction only pertains to "any role in the
implementation or enforcement of the law," Congress may still exercise its oversight function which is a mechanism
of checks and balances that the Constitution itself allows. But it must be made clear that Congress‘ role must be
confined to mere oversight. Any post-enactment-measure allowing legislator participation beyond oversight is bereft
of any constitutional basis and hence, tantamount to impermissible interference and/or assumption of executive
functions. As the Court ruled in Abakada:178
Any post-enactment congressional measure x x x should be limited to scrutiny and investigation.1âwphi1 In
particular, congressional oversight must be confined to the following:
(1) scrutiny based primarily on Congress‘ power of appropriation and the budget hearings conducted in
connection with it, its power to ask heads of departments to appear before and be heard by either of its
Houses on any matter pertaining to their departments and its power of confirmation; and
(2) investigation and monitoring of the implementation of laws pursuant to the power of Congress to
conduct inquiries in aid of legislation.
Any action or step beyond that will undermine the separation of powers guaranteed by the Constitution. (Emphases
supplied)
b. Application.
In these cases, petitioners submit that the Congressional Pork Barrel – among others, the 2013 PDAF Article –
"wrecks the assignment of responsibilities between the political branches" as it is designed to allow individual
legislators to interfere "way past the time it should have ceased" or, particularly, "after the GAA is passed." 179 They
state that the findings and recommendations in the CoA Report provide "an illustration of how absolute and
definitive the power of legislators wield over project implementation in complete violation of the constitutional
principle of separation of powers."180 Further, they point out that the Court in the Philconsa case only allowed the
CDF to exist on the condition that individual legislators limited their role to recommending projects and not if they
actually dictate their implementation.181
For their part, respondents counter that the separations of powers principle has not been violated since the
President maintains "ultimate authority to control the execution of the GAA‖ and that he "retains the final discretion
to reject" the legislators‘ proposals.182 They maintain that the Court, in Philconsa, "upheld the constitutionality of the
power of members of Congress to propose and identify projects so long as such proposal and identification are
recommendatory."183 As such, they claim that "everything in the Special Provisions [of the 2013 PDAF Article
follows the Philconsa framework, and hence, remains constitutional." 184
The Court rules in favor of petitioners.
As may be observed from its legal history, the defining feature of all forms of Congressional Pork Barrel would be
the authority of legislators to participate in the post-enactment phases of project implementation.
At its core, legislators – may it be through project lists,185 prior consultations186 or program menus187 – have been
consistently accorded post-enactment authority to identify the projects they desire to be funded through various
Congressional Pork Barrel allocations. Under the 2013 PDAF Article, the statutory authority of legislators to identify
projects post-GAA may be construed from the import of Special Provisions 1 to 3 as well as the second paragraph
of Special Provision 4. To elucidate, Special Provision 1 embodies the program menu feature which, as evinced
from past PDAF Articles, allows individual legislators to identify PDAF projects for as long as the identified project
falls under a general program listed in the said menu. Relatedly, Special Provision 2 provides that the implementing
agencies shall, within 90 days from the GAA is passed, submit to Congress a more detailed priority list, standard or
design prepared and submitted by implementing agencies from which the legislator may make his choice. The
same provision further authorizes legislators to identify PDAF projects outside his district for as long as the
representative of the district concerned concurs in writing. Meanwhile, Special Provision 3 clarifies that PDAF
projects refer to "projects to be identified by legislators" 188 and thereunder provides the allocation limit for the total
amount of projects identified by each legislator. Finally, paragraph 2 of Special Provision 4 requires that any
modification and revision of the project identification "shall be submitted to the House Committee on Appropriations
and the Senate Committee on Finance for favorable endorsement to the DBM or the implementing agency, as the
case may be." From the foregoing special provisions, it cannot be seriously doubted that legislators have been
accorded post-enactment authority to identify PDAF projects.
Aside from the area of project identification, legislators have also been accorded post-enactment authority in the
areas of fund release and realignment. Under the 2013 PDAF Article, the statutory authority of legislators to
participate in the area of fund release through congressional committees is contained in Special Provision 5 which
explicitly states that "all request for release of funds shall be supported by the documents prescribed under Special
Provision No. 1 and favorably endorsed by House Committee on Appropriations and the Senate Committee on
Finance, as the case may be"; while their statutory authority to participate in the area of fund realignment is
contained in: first , paragraph 2, Special Provision 4189 which explicitly state s, among others, that "any realignment
of funds shall be submitted to the House Committee on Appropriations and the Senate Committee on Finance for
favorable endorsement to the DBM or the implementing agency, as the case may be‖ ; and, second , paragraph 1,
also of Special Provision 4 which authorizes the "Secretaries of Agriculture, Education, Energy, Interior and Local
Government, Labor and Employment, Public Works and Highways, Social Welfare and Development and Trade
and Industry190 x x x to approve realignment from one project/scope to another within the allotment received from
this Fund, subject to among others (iii) the request is with the concurrence of the legislator concerned."
Clearly, these post-enactment measures which govern the areas of project identification, fund release and fund
realignment are not related to functions of congressional oversight and, hence, allow legislators to intervene and/or
assume duties that properly belong to the sphere of budget execution. Indeed, by virtue of the foregoing, legislators
have been, in one form or another, authorized to participate in – as Guingona, Jr. puts it – "the various operational
aspects of budgeting," including "the evaluation of work and financial plans for individual activities" and the
"regulation and release of funds" in violation of the separation of powers principle. The fundamental rule, as
categorically articulated in Abakada, cannot be overstated – from the moment the law becomes effective, any
provision of law that empowers Congress or any of its members to play any role in the implementation or
enforcement of the law violates the principle of separation of powers and is thus unconstitutional. 191 That the said
authority is treated as merely recommendatory in nature does not alter its unconstitutional tenor since the
prohibition, to repeat, covers any role in the implementation or enforcement of the law. Towards this end, the Court
must therefore abandon its ruling in Philconsa which sanctioned the conduct of legislator identification on the guise
that the same is merely recommendatory and, as such, respondents‘ reliance on the same falters altogether.
Besides, it must be pointed out that respondents have nonetheless failed to substantiate their position that the
identification authority of legislators is only of recommendatory import. Quite the contrary, respondents – through
the statements of the Solicitor General during the Oral Arguments – have admitted that the identification of the
legislator constitutes a mandatory requirement before his PDAF can be tapped as a funding source, thereby
highlighting the indispensability of the said act to the entire budget execution process: 192
Justice Bernabe: Now, without the individual legislator’s identification of the project, can the PDAF of the legislator
be utilized?
Solicitor General Jardeleza: No, Your Honor.
Justice Bernabe: It cannot?
Solicitor General Jardeleza: It cannot… (interrupted)
Justice Bernabe: So meaning you should have the identification of the project by the individual legislator?
Solicitor General Jardeleza: Yes, Your Honor.
xxxx
Justice Bernabe: In short, the act of identification is mandatory?
Solictor General Jardeleza: Yes, Your Honor. In the sense that if it is not done and then there is no identification.
xxxx
Justice Bernabe: Now, would you know of specific instances when a project was implemented without the
identification by the individual legislator?
Solicitor General Jardeleza: I do not know, Your Honor; I do not think so but I have no specific examples. I would
doubt very much, Your Honor, because to implement, there is a need for a SARO and the NCA. And the SARO and
the NCA are triggered by an identification from the legislator.
xxxx
Solictor General Jardeleza: What we mean by mandatory, Your Honor, is we were replying to a question, "How can
a legislator make sure that he is able to get PDAF Funds?" It is mandatory in the sense that he must identify, in that
sense, Your Honor. Otherwise, if he does not identify, he cannot avail of the PDAF Funds and his district would not
be able to have PDAF Funds, only in that sense, Your Honor. (Emphases supplied)
Thus, for all the foregoing reasons, the Court hereby declares the 2013 PDAF Article as well as all other provisions
of law which similarly allow legislators to wield any form of post-enactment authority in the implementation or
enforcement of the budget, unrelated to congressional oversight, as violative of the separation of powers principle
and thus unconstitutional. Corollary thereto, informal practices, through which legislators have effectively intruded
into the proper phases of budget execution, must be deemed as acts of grave abuse of discretion amounting to lack
or excess of jurisdiction and, hence, accorded the same unconstitutional treatment. That such informal practices do
exist and have, in fact, been constantly observed throughout the years has not been substantially disputed here. As
pointed out by Chief Justice Maria Lourdes P.A. Sereno (Chief Justice Sereno) during the Oral Arguments of these
cases:193
Chief Justice Sereno:
Now, from the responses of the representative of both, the DBM and two (2) Houses of Congress, if we enforces
the initial thought that I have, after I had seen the extent of this research made by my staff, that neither the
Executive nor Congress frontally faced the question of constitutional compatibility of how they were engineering the
budget process. In fact, the words you have been using, as the three lawyers of the DBM, and both Houses of
Congress has also been using is surprise; surprised that all of these things are now surfacing. In fact, I thought that
what the 2013 PDAF provisions did was to codify in one section all the past practice that had been done since
1991. In a certain sense, we should be thankful that they are all now in the PDAF Special Provisions. x x x
(Emphasis and underscoring supplied)
Ultimately, legislators cannot exercise powers which they do not have, whether through formal measures written
into the law or informal practices institutionalized in government agencies, else the Executive department be
deprived of what the Constitution has vested as its own.
2. Non-delegability of Legislative Power.
a. Statement of Principle.
As an adjunct to the separation of powers principle,194 legislative power shall be exclusively exercised by the body
to which the Constitution has conferred the same. In particular, Section 1, Article VI of the 1987 Constitution states
that such power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives, except to the extent reserved to the people by the provision on initiative and referendum. 195 Based
on this provision, it is clear that only Congress, acting as a bicameral body, and the people, through the process of
initiative and referendum, may constitutionally wield legislative power and no other. This premise embodies the
principle of non-delegability of legislative power, and the only recognized exceptions thereto would be: (a)
delegated legislative power to local governments which, by immemorial practice, are allowed to legislate on purely
local matters;196 and (b) constitutionally-grafted exceptions such as the authority of the President to, by law,
exercise powers necessary and proper to carry out a declared national policy in times of war or other national
emergency,197or fix within specified limits, and subject to such limitations and restrictions as Congress may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework
of the national development program of the Government.198
Notably, the principle of non-delegability should not be confused as a restriction to delegate rule-making authority to
implementing agencies for the limited purpose of either filling up the details of the law for its enforcement
(supplementary rule-making) or ascertaining facts to bring the law into actual operation (contingent rule-
making).199The conceptual treatment and limitations of delegated rule-making were explained in the case of People
v. Maceren200 as follows:
The grant of the rule-making power to administrative agencies is a relaxation of the principle of separation of
powers and is an exception to the nondelegation of legislative powers. Administrative regulations or "subordinate
legislation" calculated to promote the public interest are necessary because of "the growing complexity of modern
life, the multiplication of the subjects of governmental regulations, and the increased difficulty of administering the
law."
xxxx
Nevertheless, it must be emphasized that the rule-making power must be confined to details for regulating the
mode or proceeding to carry into effect the law as it has been enacted. The power cannot be extended to amending
or expanding the statutory requirements or to embrace matters not covered by the statute. Rules that subvert the
statute cannot be sanctioned. (Emphases supplied)
b. Application.
In the cases at bar, the Court observes that the 2013 PDAF Article, insofar as it confers post-enactment
identification authority to individual legislators, violates the principle of non-delegability since said legislators are
effectively allowed to individually exercise the power of appropriation, which – as settled in Philconsa – is lodged in
Congress.201 That the power to appropriate must be exercised only through legislation is clear from Section 29(1),
Article VI of the 1987 Constitution which states that: "No money shall be paid out of the Treasury except in
pursuance of an appropriation made by law." To understand what constitutes an act of appropriation, the Court, in
Bengzon v. Secretary of Justice and Insular Auditor202 (Bengzon), held that the power of appropriation involves (a)
the setting apart by law of a certain sum from the public revenue for (b) a specified purpose. Essentially, under the
2013 PDAF Article, individual legislators are given a personal lump-sum fund from which they are able to dictate (a)
how much from such fund would go to (b) a specific project or beneficiary that they themselves also determine. As
these two (2) acts comprise the exercise of the power of appropriation as described in Bengzon, and given that the
2013 PDAF Article authorizes individual legislators to perform the same, undoubtedly, said legislators have been
conferred the power to legislate which the Constitution does not, however, allow. Thus, keeping with the principle of
non-delegability of legislative power, the Court hereby declares the 2013 PDAF Article, as well as all other forms of
Congressional Pork Barrel which contain the similar legislative identification feature as herein discussed, as
unconstitutional.
3. Checks and Balances.
a. Statement of Principle; Item-Veto Power.
The fact that the three great powers of government are intended to be kept separate and distinct does not mean
that they are absolutely unrestrained and independent of each other. The Constitution has also provided for an
elaborate system of checks and balances to secure coordination in the workings of the various departments of the
government.203
A prime example of a constitutional check and balance would be the President’s power to veto an item written into
an appropriation, revenue or tariff bill submitted to him by Congress for approval through a process known as "bill
presentment." The President‘s item-veto power is found in Section 27(2), Article VI of the 1987 Constitution which
reads as follows:
Sec. 27. x x x.
xxxx
(2) The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill,
but the veto shall not affect the item or items to which he does not object.
The presentment of appropriation, revenue or tariff bills to the President, wherein he may exercise his power of
item-veto, forms part of the "single, finely wrought and exhaustively considered, procedures" for law-passage as
specified under the Constitution.204 As stated in Abakada, the final step in the law-making process is the
"submission of the bill to the President for approval. Once approved, it takes effect as law after the required
publication."205
Elaborating on the President‘s item-veto power and its relevance as a check on the legislature, the Court, in
Bengzon, explained that:206
The former Organic Act and the present Constitution of the Philippines make the Chief Executive an integral part of
the law-making power. His disapproval of a bill, commonly known as a veto, is essentially a legislative act. The
questions presented to the mind of the Chief Executive are precisely the same as those the legislature must
determine in passing a bill, except that his will be a broader point of view.
The Constitution is a limitation upon the power of the legislative department of the government, but in this respect it
is a grant of power to the executive department. The Legislature has the affirmative power to enact laws; the Chief
Executive has the negative power by the constitutional exercise of which he may defeat the will of the Legislature. It
follows that the Chief Executive must find his authority in the Constitution. But in exercising that authority he may
not be confined to rules of strict construction or hampered by the unwise interference of the judiciary. The courts
will indulge every intendment in favor of the constitutionality of a veto in the same manner as they will presume the
constitutionality of an act as originally passed by the Legislature. (Emphases supplied)
The justification for the President‘s item-veto power rests on a variety of policy goals such as to prevent log-rolling
legislation,207 impose fiscal restrictions on the legislature, as well as to fortify the executive branch‘s role in the
budgetary process.208 In Immigration and Naturalization Service v. Chadha, the US Supreme Court characterized
the President‘s item-power as "a salutary check upon the legislative body, calculated to guard the community
against the effects of factions, precipitancy, or of any impulse unfriendly to the public good, which may happen to
influence a majority of that body"; phrased differently, it is meant to "increase the chances in favor of the community
against the passing of bad laws, through haste, inadvertence, or design."209
For the President to exercise his item-veto power, it necessarily follows that there exists a proper "item" which may
be the object of the veto. An item, as defined in the field of appropriations, pertains to "the particulars, the details,
the distinct and severable parts of the appropriation or of the bill." In the case of Bengzon v. Secretary of Justice of
the Philippine Islands,210 the US Supreme Court characterized an item of appropriation as follows:
An item of an appropriation bill obviously means an item which, in itself, is a specific appropriation of money, not
some general provision of law which happens to be put into an appropriation bill. (Emphases supplied)
On this premise, it may be concluded that an appropriation bill, to ensure that the President may be able to exercise
his power of item veto, must contain "specific appropriations of money" and not only "general provisions" which
provide for parameters of appropriation.
Further, it is significant to point out that an item of appropriation must be an item characterized by singular
correspondence – meaning an allocation of a specified singular amount for a specified singular purpose, otherwise
known as a "line-item."211 This treatment not only allows the item to be consistent with its definition as a "specific
appropriation of money" but also ensures that the President may discernibly veto the same. Based on the foregoing
formulation, the existing Calamity Fund, Contingent Fund and the Intelligence Fund, being appropriations which
state a specified amount for a specific purpose, would then be considered as "line- item" appropriations which are
rightfully subject to item veto. Likewise, it must be observed that an appropriation may be validly apportioned into
component percentages or values; however, it is crucial that each percentage or value must be allocated for its own
corresponding purpose for such component to be considered as a proper line-item. Moreover, as Justice Carpio
correctly pointed out, a valid appropriation may even have several related purposes that are by accounting and
budgeting practice considered as one purpose, e.g., MOOE (maintenance and other operating expenses), in which
case the related purposes shall be deemed sufficiently specific for the exercise of the President‘s item veto power.
Finally, special purpose funds and discretionary funds would equally square with the constitutional mechanism of
item-veto for as long as they follow the rule on singular correspondence as herein discussed. Anent special
purpose funds, it must be added that Section 25(4), Article VI of the 1987 Constitution requires that the "special
appropriations bill shall specify the purpose for which it is intended, and shall be supported by funds actually
available as certified by the National Treasurer, or t o be raised by a corresponding revenue proposal therein."
Meanwhile, with respect to discretionary funds, Section 2 5(6), Article VI of the 1987 Constitution requires that said
funds "shall be disbursed only for public purposes to be supported by appropriate vouchers and subject to such
guidelines as may be prescribed by law."
In contrast, what beckons constitutional infirmity are appropriations which merely provide for a singular lump-sum
amount to be tapped as a source of funding for multiple purposes. Since such appropriation type necessitates the
further determination of both the actual amount to be expended and the actual purpose of the appropriation which
must still be chosen from the multiple purposes stated in the law, it cannot be said that the appropriation law
already indicates a "specific appropriation of money‖ and hence, without a proper line-item which the President
may veto. As a practical result, the President would then be faced with the predicament of either vetoing the entire
appropriation if he finds some of its purposes wasteful or undesirable, or approving the entire appropriation so as
not to hinder some of its legitimate purposes. Finally, it may not be amiss to state that such arrangement also
raises non-delegability issues considering that the implementing authority would still have to determine, again, both
the actual amount to be expended and the actual purpose of the appropriation. Since the foregoing determinations
constitute the integral aspects of the power to appropriate, the implementing authority would, in effect, be
exercising legislative prerogatives in violation of the principle of non-delegability.
b. Application.
In these cases, petitioners claim that "in the current x x x system where the PDAF is a lump-sum appropriation, the
legislator‘s identification of the projects after the passage of the GAA denies the President the chance to veto that
item later on."212 Accordingly, they submit that the "item veto power of the President mandates that appropriations
bills adopt line-item budgeting" and that "Congress cannot choose a mode of budgeting which effectively renders
the constitutionally-given power of the President useless."213
On the other hand, respondents maintain that the text of the Constitution envisions a process which is intended to
meet the demands of a modernizing economy and, as such, lump-sum appropriations are essential to financially
address situations which are barely foreseen when a GAA is enacted. They argue that the decision of the Congress
to create some lump-sum appropriations is constitutionally allowed and textually-grounded.214
The Court agrees with petitioners.
Under the 2013 PDAF Article, the amount of ₱24.79 Billion only appears as a collective allocation limit since the
said amount would be further divided among individual legislators who would then receive personal lump-sum
allocations and could, after the GAA is passed, effectively appropriate PDAF funds based on their own discretion.
As these intermediate appropriations are made by legislators only after the GAA is passed and hence, outside of
the law, it necessarily means that the actual items of PDAF appropriation would not have been written into the
General Appropriations Bill and thus effectuated without veto consideration. This kind of lump-sum/post-enactment
legislative identification budgeting system fosters the creation of a budget within a budget" which subverts the
prescribed procedure of presentment and consequently impairs the President‘s power of item veto. As petitioners
aptly point out, the above-described system forces the President to decide between (a) accepting the entire ₱24.79
Billion PDAF allocation without knowing the specific projects of the legislators, which may or may not be consistent
with his national agenda and (b) rejecting the whole PDAF to the detriment of all other legislators with legitimate
projects.215
Moreover, even without its post-enactment legislative identification feature, the 2013 PDAF Article would remain
constitutionally flawed since it would then operate as a prohibited form of lump-sum appropriation above-
characterized. In particular, the lump-sum amount of ₱24.79 Billion would be treated as a mere funding source
allotted for multiple purposes of spending, i.e., scholarships, medical missions, assistance to indigents,
preservation of historical materials, construction of roads, flood control, etc. This setup connotes that the
appropriation law leaves the actual amounts and purposes of the appropriation for further determination and,
therefore, does not readily indicate a discernible item which may be subject to the President‘s power of item veto.
In fact, on the accountability side, the same lump-sum budgeting scheme has, as the CoA Chairperson relays,
"limited state auditors from obtaining relevant data and information that would aid in more stringently auditing the
utilization of said Funds."216 Accordingly, she recommends the adoption of a "line by line budget or amount per
proposed program, activity or project, and per implementing agency."217
Hence, in view of the reasons above-stated, the Court finds the 2013 PDAF Article, as well as all Congressional
Pork Barrel Laws of similar operation, to be unconstitutional. That such budgeting system provides for a greater
degree of flexibility to account for future contingencies cannot be an excuse to defeat what the Constitution
requires. Clearly, the first and essential truth of the matter is that unconstitutional means do not justify even
commendable ends.218
c. Accountability.
Petitioners further relate that the system under which various forms of Congressional Pork Barrel operate defies
public accountability as it renders Congress incapable of checking itself or its Members. In particular, they point out
that the Congressional Pork Barrel "gives each legislator a direct, financial interest in the smooth, speedy passing
of the yearly budget" which turns them "from fiscalizers" into "financially-interested partners."219 They also claim that
the system has an effect on re- election as "the PDAF excels in self-perpetuation of elective officials." Finally, they
add that the "PDAF impairs the power of impeachment" as such "funds are indeed quite useful, ‘to well, accelerate
the decisions of senators.‘"220
The Court agrees in part.
The aphorism forged under Section 1, Article XI of the 1987 Constitution, which states that "public office is a public
trust," is an overarching reminder that every instrumentality of government should exercise their official functions
only in accordance with the principles of the Constitution which embodies the parameters of the people‘s trust. The
notion of a public trust connotes accountability,221 hence, the various mechanisms in the Constitution which are
designed to exact accountability from public officers.
Among others, an accountability mechanism with which the proper expenditure of public funds may be checked is
the power of congressional oversight. As mentioned in Abakada,222 congressional oversight may be performed
either through: (a) scrutiny based primarily on Congress‘ power of appropriation and the budget hearings conducted
in connection with it, its power to ask heads of departments to appear before and be heard by either of its Houses
on any matter pertaining to their departments and its power of confirmation; 223 or (b) investigation and monitoring of
the implementation of laws pursuant to the power of Congress to conduct inquiries in aid of legislation. 224
The Court agrees with petitioners that certain features embedded in some forms of Congressional Pork Barrel,
among others the 2013 PDAF Article, has an effect on congressional oversight. The fact that individual legislators
are given post-enactment roles in the implementation of the budget makes it difficult for them to become
disinterested "observers" when scrutinizing, investigating or monitoring the implementation of the appropriation law.
To a certain extent, the conduct of oversight would be tainted as said legislators, who are vested with post-
enactment authority, would, in effect, be checking on activities in which they themselves participate. Also, it must be
pointed out that this very same concept of post-enactment authorization runs afoul of Section 14, Article VI of the
1987 Constitution which provides that:
Sec. 14. No Senator or Member of the House of Representatives may personally appear as counsel before any
court of justice or before the Electoral Tribunals, or quasi-judicial and other administrative bodies. Neither shall he,
directly or indirectly, be interested financially in any contract with, or in any franchise or special privilege granted by
the Government, or any subdivision, agency, or instrumentality thereof, including any government-owned or
controlled corporation, or its subsidiary, during his term of office. He shall not intervene in any matter before any
office of the Government for his pecuniary benefit or where he may be called upon to act on account of his office.
(Emphasis supplied)
Clearly, allowing legislators to intervene in the various phases of project implementation – a matter before another
office of government – renders them susceptible to taking undue advantage of their own office.
The Court, however, cannot completely agree that the same post-enactment authority and/or the individual
legislator‘s control of his PDAF per se would allow him to perpetuate himself in office. Indeed, while the
Congressional Pork Barrel and a legislator‘s use thereof may be linked to this area of interest, the use of his PDAF
for re-election purposes is a matter which must be analyzed based on particular facts and on a case-to-case basis.
Finally, while the Court accounts for the possibility that the close operational proximity between legislators and the
Executive department, through the former‘s post-enactment participation, may affect the process of impeachment,
this matter largely borders on the domain of politics and does not strictly concern the Pork Barrel System‘s intrinsic
constitutionality. As such, it is an improper subject of judicial assessment.
In sum, insofar as its post-enactment features dilute congressional oversight and violate Section 14, Article VI of
the 1987 Constitution, thus impairing public accountability, the 2013 PDAF Article and other forms of Congressional
Pork Barrel of similar nature are deemed as unconstitutional.
4. Political Dynasties.
One of the petitioners submits that the Pork Barrel System enables politicians who are members of political
dynasties to accumulate funds to perpetuate themselves in power, in contravention of Section 26, Article II of the
1987 Constitution225 which states that:
Sec. 26. The State shall guarantee equal access to opportunities for public service, and prohibit political dynasties
as may be defined by law. (Emphasis and underscoring supplied)
At the outset, suffice it to state that the foregoing provision is considered as not self-executing due to the qualifying
phrase "as may be defined by law." In this respect, said provision does not, by and of itself, provide a judicially
enforceable constitutional right but merely specifies guideline for legislative or executive action. 226 Therefore, since
there appears to be no standing law which crystallizes the policy on political dynasties for enforcement, the Court
must defer from ruling on this issue.
In any event, the Court finds the above-stated argument on this score to be largely speculative since it has not
been properly demonstrated how the Pork Barrel System would be able to propagate political dynasties.
5. Local Autonomy.
The State‘s policy on local autonomy is principally stated in Section 25, Article II and Sections 2 and 3, Article X of
the 1987 Constitution which read as follows:
ARTICLE II
Sec. 25. The State shall ensure the autonomy of local governments.
ARTICLE X
Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.
Sec. 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective mechanisms
of recall, initiative, and referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries,
powers and functions and duties of local officials, and all other matters relating to the organization and operation of
the local units.
Pursuant thereto, Congress enacted RA 7160,227 otherwise known as the "Local Government Code of 1991" (LGC),
wherein the policy on local autonomy had been more specifically explicated as follows:
Sec. 2. Declaration of Policy. – (a) It is hereby declared the policy of the State that the territorial and political
subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities and make them more effective partners in the attainment of national goals.
Toward this end, the State shall provide for a more responsive and accountable local government structure
instituted through a system of decentralization whereby local government units shall be given more powers,
authority, responsibilities, and resources. The process of decentralization shall proceed from the National
Government to the local government units.
 xxxx
(c) It is likewise the policy of the State to require all national agencies and offices to conduct periodic consultations
with appropriate local government units, nongovernmental and people‘s organizations, and other concerned sectors
of the community before any project or program is implemented in their respective jurisdictions. (Emphases and
underscoring supplied)
The above-quoted provisions of the Constitution and the LGC reveal the policy of the State to empower local
government units (LGUs) to develop and ultimately, become self-sustaining and effective contributors to the
national economy. As explained by the Court in Philippine Gamefowl Commission v. Intermediate Appellate
Court:228
This is as good an occasion as any to stress the commitment of the Constitution to the policy of local autonomy
which is intended to provide the needed impetus and encouragement to the development of our local political
subdivisions as "self - reliant communities." In the words of Jefferson, "Municipal corporations are the small
republics from which the great one derives its strength." The vitalization of local governments will enable their
inhabitants to fully exploit their resources and more important, imbue them with a deepened sense of involvement
in public affairs as members of the body politic. This objective could be blunted by undue interference by the
national government in purely local affairs which are best resolved by the officials and inhabitants of such political
units. The decision we reach today conforms not only to the letter of the pertinent laws but also to the spirit of the
Constitution.229 (Emphases and underscoring supplied)
In the cases at bar, petitioners contend that the Congressional Pork Barrel goes against the constitutional principles
on local autonomy since it allows district representatives, who are national officers, to substitute their judgments in
utilizing public funds for local development.230 The Court agrees with petitioners.
Philconsa described the 1994 CDF as an attempt "to make equal the unequal" and that "it is also a recognition that
individual members of Congress, far more than the President and their congressional colleagues, are likely to be
knowledgeable about the needs of their respective constituents and the priority to be given each
project."231 Drawing strength from this pronouncement, previous legislators justified its existence by stating that "the
relatively small projects implemented under the Congressional Pork Barrel complement and link the national
development goals to the countryside and grassroots as well as to depressed areas which are overlooked by
central agencies which are preoccupied with mega-projects.232 Similarly, in his August 23, 2013 speech on the
"abolition" of PDAF and budgetary reforms, President Aquino mentioned that the Congressional Pork Barrel was
originally established for a worthy goal, which is to enable the representatives to identify projects for communities
that the LGU concerned cannot afford.233
Notwithstanding these declarations, the Court, however, finds an inherent defect in the system which actually belies
the avowed intention of "making equal the unequal." In particular, the Court observes that the gauge of PDAF and
CDF allocation/division is based solely on the fact of office, without taking into account the specific interests and
peculiarities of the district the legislator represents. In this regard, the allocation/division limits are clearly not based
on genuine parameters of equality, wherein economic or geographic indicators have been taken into consideration.
As a result, a district representative of a highly-urbanized metropolis gets the same amount of funding as a district
representative of a far-flung rural province which would be relatively "underdeveloped" compared to the former. To
add, what rouses graver scrutiny is that even Senators and Party-List Representatives – and in some years, even
the Vice-President – who do not represent any locality, receive funding from the Congressional Pork Barrel as well.
These certainly are anathema to the Congressional Pork Barrel‘s original intent which is "to make equal the
unequal." Ultimately, the PDAF and CDF had become personal funds under the effective control of each legislator
and given unto them on the sole account of their office.
The Court also observes that this concept of legislator control underlying the CDF and PDAF conflicts with the
functions of the various Local Development Councils (LDCs) which are already legally mandated to "assist the
corresponding sanggunian in setting the direction of economic and social development, and coordinating
development efforts within its territorial jurisdiction."234 Considering that LDCs are instrumentalities whose functions
are essentially geared towards managing local affairs, 235 their programs, policies and resolutions should not be
overridden nor duplicated by individual legislators, who are national officers that have no law-making authority
except only when acting as a body. The undermining effect on local autonomy caused by the post-enactment
authority conferred to the latter was succinctly put by petitioners in the following wise: 236
With PDAF, a Congressman can simply bypass the local development council and initiate projects on his own, and
even take sole credit for its execution. Indeed, this type of personality-driven project identification has not only
contributed little to the overall development of the district, but has even contributed to "further weakening
infrastructure planning and coordination efforts of the government."
Thus, insofar as individual legislators are authorized to intervene in purely local matters and thereby subvert
genuine local autonomy, the 2013 PDAF Article as well as all other similar forms of Congressional Pork Barrel is
deemed unconstitutional.
With this final issue on the Congressional Pork Barrel resolved, the Court now turns to the substantive issues
involving the Presidential Pork Barrel.
C. Substantive Issues on the Presidential Pork Barrel.
1. Validity of Appropriation.
Petitioners preliminarily assail Section 8 of PD 910 and Section 12 of PD1869 (now, amended by PD 1993), which
respectively provide for the Malampaya Funds and the Presidential Social Fund, as invalid appropriations laws
since they do not have the "primary and specific" purpose of authorizing the release of public funds from the
National Treasury. Petitioners submit that Section 8 of PD 910 is not an appropriation law since the "primary and
specific‖ purpose of PD 910 is the creation of an Energy Development Board and Section 8 thereof only created a
Special Fund incidental thereto.237 In similar regard, petitioners argue that Section 12 of PD 1869 is neither a valid
appropriations law since the allocation of the Presidential Social Fund is merely incidental to the "primary and
specific" purpose of PD 1869 which is the amendment of the Franchise and Powers of PAGCOR.238 In view of the
foregoing, petitioners suppose that such funds are being used without any valid law allowing for their proper
appropriation in violation of Section 29(1), Article VI of the 1987 Constitution which states that: "No money shall be
paid out of the Treasury except in pursuance of an appropriation made by law."239
The Court disagrees.
"An appropriation made by law‖ under the contemplation of Section 29(1), Article VI of the 1987 Constitution exists
when a provision of law (a) sets apart a determinate or determinable240 amount of money and (b) allocates the
same for a particular public purpose. These two minimum designations of amount and purpose stem from the very
definition of the word "appropriation," which means "to allot, assign, set apart or apply to a particular use or
purpose," and hence, if written into the law, demonstrate that the legislative intent to appropriate exists. As the
Constitution "does not provide or prescribe any particular form of words or religious recitals in which an
authorization or appropriation by Congress shall be made, except that it be ‘made by law,‘" an appropriation law
may – according to Philconsa – be "detailed and as broad as Congress wants it to be" for as long as the intent to
appropriate may be gleaned from the same. As held in the case of Guingona, Jr.: 241
There is no provision in our Constitution that provides or prescribes any particular form of words or religious recitals
in which an authorization or appropriation by Congress shall be made, except that it be "made by law," such as
precisely the authorization or appropriation under the questioned presidential decrees. In other words, in terms of
time horizons, an appropriation may be made impliedly (as by past but subsisting legislations) as well as expressly
for the current fiscal year (as by enactment of laws by the present Congress), just as said appropriation may be
made in general as well as in specific terms. The Congressional authorization may be embodied in annual laws,
such as a general appropriations act or in special provisions of laws of general or special application which
appropriate public funds for specific public purposes, such as the questioned decrees. An appropriation measure is
sufficient if the legislative intention clearly and certainly appears from the language employed (In re Continuing
Appropriations, 32 P. 272), whether in the past or in the present. (Emphases and underscoring supplied)
Likewise, as ruled by the US Supreme Court in State of Nevada v. La Grave: 242
To constitute an appropriation there must be money placed in a fund applicable to the designated purpose. The
word appropriate means to allot, assign, set apart or apply to a particular use or purpose. An appropriation in the
sense of the constitution means the setting apart a portion of the public funds for a public purpose. No particular
form of words is necessary for the purpose, if the intention to appropriate is plainly manifested. (Emphases
supplied)
Thus, based on the foregoing, the Court cannot sustain the argument that the appropriation must be the "primary
and specific" purpose of the law in order for a valid appropriation law to exist. To reiterate, if a legal provision
designates a determinate or determinable amount of money and allocates the same for a particular public purpose,
then the legislative intent to appropriate becomes apparent and, hence, already sufficient to satisfy the requirement
of an "appropriation made by law" under contemplation of the Constitution.
Section 8 of PD 910 pertinently provides:
Section 8. Appropriations. x x x
All fees, revenues and receipts of the Board from any and all sources including receipts from service contracts and
agreements such as application and processing fees, signature bonus, discovery bonus, production bonus; all
money collected from concessionaires, representing unspent work obligations, fines and penalties under the
Petroleum Act of 1949; as well as the government share representing royalties, rentals, production share on service
contracts and similar payments on the exploration, development and exploitation of energy resources, shall form
part of a Special Fund to be used to finance energy resource development and exploitation programs and projects
of the government and for such other purposes as may be hereafter directed by the President. (Emphases
supplied)
Whereas Section 12 of PD 1869, as amended by PD 1993, reads:
Sec. 12. Special Condition of Franchise. — After deducting five (5%) percent as Franchise Tax, the Fifty (50%)
percent share of the Government in the aggregate gross earnings of the Corporation from this Franchise, or 60% if
the aggregate gross earnings be less than ₱150,000,000.00 shall be set aside and shall accrue to the General
Fund to finance the priority infrastructure development projects and to finance the restoration of damaged or
destroyed facilities due to calamities, as may be directed and authorized by the Office of the President of the
Philippines. (Emphases supplied)
Analyzing the legal text vis-à-vis the above-mentioned principles, it may then be concluded that (a) Section 8 of PD
910, which creates a Special Fund comprised of "all fees, revenues, and receipts of the Energy Development Board
from any and all sources" (a determinable amount) "to be used to finance energy resource development and
exploitation programs and projects of the government and for such other purposes as may be hereafter directed by
the President" (a specified public purpose), and (b) Section 12 of PD 1869, as amended by PD 1993, which
similarly sets aside, "after deducting five (5%) percent as Franchise Tax, the Fifty (50%) percent share of the
Government in the aggregate gross earnings of PAGCOR, or 60%, if the aggregate gross earnings be less than
₱150,000,000.00" (also a determinable amount) "to finance the priority infrastructure development projects and x x
x the restoration of damaged or destroyed facilities due to calamities, as may be directed and authorized by the
Office of the President of the Philippines" (also a specified public purpose), are legal appropriations under Section
29(1), Article VI of the 1987 Constitution.
In this relation, it is apropos to note that the 2013 PDAF Article cannot be properly deemed as a legal appropriation
under the said constitutional provision precisely because, as earlier stated, it contains post-enactment measures
which effectively create a system of intermediate appropriations. These intermediate appropriations are the actual
appropriations meant for enforcement and since they are made by individual legislators after the GAA is passed,
they occur outside the law. As such, the Court observes that the real appropriation made under the 2013 PDAF
Article is not the ₱24.79 Billion allocated for the entire PDAF, but rather the post-enactment determinations made
by the individual legislators which are, to repeat, occurrences outside of the law. Irrefragably, the 2013 PDAF
Article does not constitute an "appropriation made by law" since it, in its truest sense, only authorizes individual
legislators to appropriate in violation of the non-delegability principle as afore-discussed.
2. Undue Delegation.
On a related matter, petitioners contend that Section 8 of PD 910 constitutes an undue delegation of legislative
power since the phrase "and for such other purposes as may be hereafter directed by the President" gives the
President "unbridled discretion to determine for what purpose the funds will be used." 243 Respondents, on the other
hand, urged the Court to apply the principle of ejusdem generis to the same section and thus, construe the phrase
"and for such other purposes as may be hereafter directed by the President" to refer only to other purposes related
"to energy resource development and exploitation programs and projects of the government." 244
The Court agrees with petitioners‘ submissions.
While the designation of a determinate or determinable amount for a particular public purpose is sufficient for a
legal appropriation to exist, the appropriation law must contain adequate legislative guidelines if the same law
delegates rule-making authority to the Executive245 either for the purpose of (a) filling up the details of the law for its
enforcement, known as supplementary rule-making, or (b) ascertaining facts to bring the law into actual operation,
referred to as contingent rule-making.246 There are two (2) fundamental tests to ensure that the legislative
guidelines for delegated rule-making are indeed adequate. The first test is called the "completeness test." Case law
states that a law is complete when it sets forth therein the policy to be executed, carried out, or implemented by the
delegate. On the other hand, the second test is called the "sufficient standard test." Jurisprudence holds that a law
lays down a sufficient standard when it provides adequate guidelines or limitations in the law to map out the
boundaries of the delegate‘s authority and prevent the delegation from running riot.247 To be sufficient, the standard
must specify the limits of the delegate‘s authority, announce the legislative policy, and identify the conditions under
which it is to be implemented.248
In view of the foregoing, the Court agrees with petitioners that the phrase "and for such other purposes as may be
hereafter directed by the President" under Section 8 of PD 910 constitutes an undue delegation of legislative power
insofar as it does not lay down a sufficient standard to adequately determine the limits of the President‘s authority
with respect to the purpose for which the Malampaya Funds may be used. As it reads, the said phrase gives the
President wide latitude to use the Malampaya Funds for any other purpose he may direct and, in effect, allows him
to unilaterally appropriate public funds beyond the purview of the law. That the subject phrase may be confined only
to "energy resource development and exploitation programs and projects of the government" under the principle of
ejusdem generis, meaning that the general word or phrase is to be construed to include – or be restricted to –
things akin to, resembling, or of the same kind or class as those specifically mentioned, 249 is belied by three (3)
reasons: first, the phrase "energy resource development and exploitation programs and projects of the government"
states a singular and general class and hence, cannot be treated as a statutory reference of specific things from
which the general phrase "for such other purposes" may be limited; second, the said phrase also exhausts the
class it represents, namely energy development programs of the government; 250 and, third, the Executive
department has, in fact, used the Malampaya Funds for non-energy related purposes under the subject phrase,
thereby contradicting respondents‘ own position that it is limited only to "energy resource development and
exploitation programs and projects of the government."251 Thus, while Section 8 of PD 910 may have passed the
completeness test since the policy of energy development is clearly deducible from its text, the phrase "and for
such other purposes as may be hereafter directed by the President" under the same provision of law should
nonetheless be stricken down as unconstitutional as it lies independently unfettered by any sufficient standard of
the delegating law. This notwithstanding, it must be underscored that the rest of Section 8, insofar as it allows for
the use of the Malampaya Funds "to finance energy resource development and exploitation programs and projects
of the government," remains legally effective and subsisting. Truth be told, the declared unconstitutionality of the
aforementioned phrase is but an assurance that the Malampaya Funds would be used – as it should be used – only
in accordance with the avowed purpose and intention of PD 910.
As for the Presidential Social Fund, the Court takes judicial notice of the fact that Section 12 of PD 1869 has
already been amended by PD 1993 which thus moots the parties‘ submissions on the same. 252 Nevertheless, since
the amendatory provision may be readily examined under the current parameters of discussion, the Court proceeds
to resolve its constitutionality.
Primarily, Section 12 of PD 1869, as amended by PD 1993, indicates that the Presidential Social Fund may be
used "to first, finance the priority infrastructure development projects and second, to finance the restoration of
damaged or destroyed facilities due to calamities, as may be directed and authorized by the Office of the President
of the Philippines." The Court finds that while the second indicated purpose adequately curtails the authority of the
President to spend the Presidential Social Fund only for restoration purposes which arise from calamities, the first
indicated purpose, however, gives him carte blanche authority to use the same fund for any infrastructure project
he may so determine as a "priority". Verily, the law does not supply a definition of "priority in frastructure
development projects" and hence, leaves the President without any guideline to construe the same. To note, the
delimitation of a project as one of "infrastructure" is too broad of a classification since the said term could pertain to
any kind of facility. This may be deduced from its lexicographic definition as follows: "the underlying framework of a
system, especially public services and facilities (such as highways, schools, bridges, sewers, and water-systems)
needed to support commerce as well as economic and residential development."253 In fine, the phrase "to finance
the priority infrastructure development projects" must be stricken down as unconstitutional since – similar to the
above-assailed provision under Section 8 of PD 910 – it lies independently unfettered by any sufficient standard of
the delegating law. As they are severable, all other provisions of Section 12 of PD 1869, as amended by PD 1993,
remains legally effective and subsisting.
D. Ancillary Prayers. 1.
Petitioners’ Prayer to be Furnished Lists and Detailed Reports.
Aside from seeking the Court to declare the Pork Barrel System unconstitutional – as the Court did so in the context
of its pronouncements made in this Decision – petitioners equally pray that the Executive Secretary and/or the DBM
be ordered to release to the CoA and to the public: (a) "the complete schedule/list of legislators who have availed of
their PDAF and VILP from the years 2003 to 2013, specifying the use of the funds, the project or activity and the
recipient entities or individuals, and all pertinent data thereto" (PDAF Use Schedule/List); 254 and (b) "the use of the
Executive‘s lump-sum, discretionary funds, including the proceeds from the x x x Malampaya Funds and
remittances from the PAGCOR x x x from 2003 to 2013, specifying the x x x project or activity and the recipient
entities or individuals, and all pertinent data thereto"255 (Presidential Pork Use Report). Petitioners‘ prayer is
grounded on Section 28, Article II and Section 7, Article III of the 1987 Constitution which read as follows:
ARTICLE II
Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public
disclosure of all its transactions involving public interest.
 ARTICLE III Sec. 7.
The right of the people to information on matters of public concern shall be recognized. Access to official records,
and to documents and papers pertaining to official acts, transactions, or decisions, as well as to government
research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may
be provided by law.
The Court denies petitioners‘ submission.
Case law instructs that the proper remedy to invoke the right to information is to file a petition for mandamus. As
explained in the case of Legaspi v. Civil Service Commission: 256
While the manner of examining public records may be subject to reasonable regulation by the government agency
in custody thereof, the duty to disclose the information of public concern, and to afford access to public records
cannot be discretionary on the part of said agencies. Certainly, its performance cannot be made contingent upon
the discretion of such agencies. Otherwise, the enjoyment of the constitutional right may be rendered nugatory by
any whimsical exercise of agency discretion. The constitutional duty, not being discretionary, its performance may
be compelled by a writ of mandamus in a proper case.
But what is a proper case for Mandamus to issue? In the case before Us, the public right to be enforced and the
concomitant duty of the State are unequivocably set forth in the Constitution.
The decisive question on the propriety of the issuance of the writ of mandamus in this case is, whether the
information sought by the petitioner is within the ambit of the constitutional guarantee. (Emphases supplied)
Corollarily, in the case of Valmonte v. Belmonte Jr.257 (Valmonte), it has been clarified that the right to information
does not include the right to compel the preparation of "lists, abstracts, summaries and the like." In the same case,
it was stressed that it is essential that the "applicant has a well -defined, clear and certain legal right to the thing
demanded and that it is the imperative duty of defendant to perform the act required." Hence, without the foregoing
substantiations, the Court cannot grant a particular request for information. The pertinent portions of Valmonte are
hereunder quoted:258
Although citizens are afforded the right to information and, pursuant thereto, are entitled to "access to official
records," the Constitution does not accord them a right to compel custodians of official records to prepare lists,
abstracts, summaries and the like in their desire to acquire information on matters of public concern.
It must be stressed that it is essential for a writ of mandamus to issue that the applicant has a well-defined, clear
and certain legal right to the thing demanded and that it is the imperative duty of defendant to perform the act
required. The corresponding duty of the respondent to perform the required act must be clear and specific Lemi v.
Valencia, G.R. No. L-20768, November 29,1968,126 SCRA 203; Ocampo v. Subido, G.R. No. L-28344, August 27,
1976, 72 SCRA 443.
The request of the petitioners fails to meet this standard, there being no duty on the part of respondent to prepare
the list requested. (Emphases supplied)
In these cases, aside from the fact that none of the petitions are in the nature of mandamus actions, the Court finds
that petitioners have failed to establish a "a well-defined, clear and certain legal right" to be furnished by the
Executive Secretary and/or the DBM of their requested PDAF Use Schedule/List and Presidential Pork Use Report.
Neither did petitioners assert any law or administrative issuance which would form the bases of the latter‘s duty to
furnish them with the documents requested. While petitioners pray that said information be equally released to the
CoA, it must be pointed out that the CoA has not been impleaded as a party to these cases nor has it filed any
petition before the Court to be allowed access to or to compel the release of any official document relevant to the
conduct of its audit investigations. While the Court recognizes that the information requested is a matter of
significant public concern, however, if only to ensure that the parameters of disclosure are properly foisted and so
as not to unduly hamper the equally important interests of the government, it is constrained to deny petitioners‘
prayer on this score, without prejudice to a proper mandamus case which they, or even the CoA, may choose to
pursue through a separate petition.
It bears clarification that the Court‘s denial herein should only cover petitioners‘ plea to be furnished with such
schedule/list and report and not in any way deny them, or the general public, access to official documents which
are already existing and of public record. Subject to reasonable regulation and absent any valid statutory
prohibition, access to these documents should not be proscribed. Thus, in Valmonte, while the Court denied the
application for mandamus towards the preparation of the list requested by petitioners therein, it nonetheless
allowed access to the documents sought for by the latter, subject, however, to the custodian‘s reasonable
regulations,viz.:259
In fine, petitioners are entitled to access to the documents evidencing loans granted by the GSIS, subject to
reasonable regulations that the latter may promulgate relating to the manner and hours of examination, to the end
that damage to or loss of the records may be avoided, that undue interference with the duties of the custodian of
the records may be prevented and that the right of other persons entitled to inspect the records may be insured
Legaspi v. Civil Service Commission, supra at p. 538, quoting Subido v. Ozaeta, 80 Phil. 383, 387. The petition, as
to the second and third alternative acts sought to be done by petitioners, is meritorious.
However, the same cannot be said with regard to the first act sought by petitioners, i.e.,
"to furnish petitioners the list of the names of the Batasang Pambansa members belonging to the UNIDO and PDP-
Laban who were able to secure clean loans immediately before the February 7 election thru the
intercession/marginal note of the then First Lady Imelda Marcos."
The Court, therefore, applies the same treatment here.
2. Petitioners’ Prayer to Include Matters in Congressional Deliberations.
Petitioners further seek that the Court "order the inclusion in budgetary deliberations with the Congress of all
presently, off-budget, lump sum, discretionary funds including but not limited to, proceeds from the x x x
Malampaya Fund, remittances from the PAGCOR and the PCSO or the Executive‘s Social Funds." 260
Suffice it to state that the above-stated relief sought by petitioners covers a matter which is generally left to the
prerogative of the political branches of government. Hence, lest the Court itself overreach, it must equally deny their
prayer on this score.
3. Respondents’ Prayer to Lift TRO; Consequential Effects of Decision.
The final issue to be resolved stems from the interpretation accorded by the DBM to the concept of released funds.
In response to the Court‘s September 10, 2013 TRO that enjoined the release of the remaining PDAF allocated for
the year 2013, the DBM issued Circular Letter No. 2013-8 dated September 27, 2013 (DBM Circular 2013-8) which
pertinently reads as follows:
3.0 Nonetheless, PDAF projects funded under the FY 2013 GAA, where a Special Allotment Release Order
(SARO) has been issued by the DBM and such SARO has been obligated by the implementing agencies prior to
the issuance of the TRO, may continually be implemented and disbursements thereto effected by the agencies
concerned.
Based on the text of the foregoing, the DBM authorized the continued implementation and disbursement of PDAF
funds as long as they are: first, covered by a SARO; and, second, that said SARO had been obligated by the
implementing agency concerned prior to the issuance of the Court‘s September 10, 2013 TRO.
Petitioners take issue with the foregoing circular, arguing that "the issuance of the SARO does not yet involve the
release of funds under the PDAF, as release is only triggered by the issuance of a Notice of Cash Allocation
[(NCA)]."261 As such, PDAF disbursements, even if covered by an obligated SARO, should remain enjoined.
For their part, respondents espouse that the subject TRO only covers "unreleased and unobligated allotments."
They explain that once a SARO has been issued and obligated by the implementing agency concerned, the PDAF
funds covered by the same are already "beyond the reach of the TRO because they cannot be considered as
‘remaining PDAF.‘" They conclude that this is a reasonable interpretation of the TRO by the DBM. 262
The Court agrees with petitioners in part.
At the outset, it must be observed that the issue of whether or not the Court‘s September 10, 2013 TRO should be
lifted is a matter rendered moot by the present Decision. The unconstitutionality of the 2013 PDAF Article as
declared herein has the consequential effect of converting the temporary injunction into a permanent one. Hence,
from the promulgation of this Decision, the release of the remaining PDAF funds for 2013, among others, is now
permanently enjoined.
The propriety of the DBM‘s interpretation of the concept of "release" must, nevertheless, be resolved as it has a
practical impact on the execution of the current Decision. In particular, the Court must resolve the issue of whether
or not PDAF funds covered by obligated SAROs, at the time this Decision is promulgated, may still be disbursed
following the DBM‘s interpretation in DBM Circular 2013-8.
On this score, the Court agrees with petitioners‘ posturing for the fundamental reason that funds covered by an
obligated SARO are yet to be "released" under legal contemplation. A SARO, as defined by the DBM itself in its
website, is "aspecific authority issued to identified agencies to incur obligations not exceeding a given amount
during a specified period for the purpose indicated. It shall cover expenditures the release of which is subject to
compliance with specific laws or regulations, or is subject to separate approval or clearance by competent
authority."263
Based on this definition, it may be gleaned that a SARO only evinces the existence of an obligation and not the
directive to pay. Practically speaking, the SARO does not have the direct and immediate effect of placing public
funds beyond the control of the disbursing authority. In fact, a SARO may even be withdrawn under certain
circumstances which will prevent the actual release of funds. On the other hand, the actual release of funds is
brought about by the issuance of the NCA,264 which is subsequent to the issuance of a SARO. As may be
determined from the statements of the DBM representative during the Oral Arguments: 265
Justice Bernabe: Is the notice of allocation issued simultaneously with the SARO?
xxxx
Atty. Ruiz: It comes after. The SARO, Your Honor, is only the go signal for the agencies to obligate or to enter into
commitments. The NCA, Your Honor, is already the go signal to the treasury for us to be able to pay or to liquidate
the amounts obligated in the SARO; so it comes after. x x x The NCA, Your Honor, is the go signal for the MDS for
the authorized government-disbursing banks to, therefore, pay the payees depending on the projects or projects
covered by the SARO and the NCA.
Justice Bernabe: Are there instances that SAROs are cancelled or revoked?
Atty. Ruiz: Your Honor, I would like to instead submit that there are instances that the SAROs issued are withdrawn
by the DBM.
Justice Bernabe: They are withdrawn?
Atty. Ruiz: Yes, Your Honor x x x. (Emphases and underscoring supplied)
Thus, unless an NCA has been issued, public funds should not be treated as funds which have been "released." In
this respect, therefore, the disbursement of 2013 PDAF funds which are only covered by obligated SAROs, and
without any corresponding NCAs issued, must, at the time of this Decision’s promulgation, be enjoined and
consequently reverted to the unappropriated surplus of the general fund. Verily, in view of the declared
unconstitutionality of the 2013 PDAF Article, the funds appropriated pursuant thereto cannot be disbursed even
though already obligated, else the Court sanctions the dealing of funds coming from an unconstitutional source.
This same pronouncement must be equally applied to (a) the Malampaya Funds which have been obligated but not
released – meaning, those merely covered by a SARO – under the phrase "and for such other purposes as may be
hereafter directed by the President" pursuant to Section 8 of PD 910; and (b) funds sourced from the Presidential
Social Fund under the phrase "to finance the priority infrastructure development projects" pursuant to Section 12 of
PD 1869, as amended by PD 1993, which were altogether declared by the Court as unconstitutional. However,
these funds should not be reverted to the general fund as afore-stated but instead, respectively remain under the
Malampaya Funds and the Presidential Social Fund to be utilized for their corresponding special purposes not
otherwise declared as unconstitutional.
E. Consequential Effects of Decision.
As a final point, it must be stressed that the Court‘s pronouncement anent the unconstitutionality of (a) the 2013
PDAF Article and its Special Provisions, (b) all other Congressional Pork Barrel provisions similar thereto, and (c)
the phrases (1) "and for such other purposes as may be hereafter directed by the President" under Section 8 of PD
910, and (2) "to finance the priority infrastructure development projects" under Section 12 of PD 1869, as amended
by PD 1993, must only be treated as prospective in effect in view of the operative fact doctrine.
To explain, the operative fact doctrine exhorts the recognition that until the judiciary, in an appropriate case,
declares the invalidity of a certain legislative or executive act, such act is presumed constitutional and thus, entitled
to obedience and respect and should be properly enforced and complied with. As explained in the recent case of
Commissioner of Internal Revenue v. San Roque Power Corporation,266 the doctrine merely "reflects awareness
that precisely because the judiciary is the governmental organ which has the final say on whether or not a
legislative or executive measure is valid, a period of time may have elapsed before it can exercise the power of
judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of fairness and
justice then, if there be no recognition of what had transpired prior to such adjudication." 267 "In the language of an
American Supreme Court decision: ‘The actual existence of a statute, prior to such a determination of
unconstitutionality, is an operative fact and may have consequences which cannot justly be ignored.‘" 268
For these reasons, this Decision should be heretofore applied prospectively.
Conclusion
The Court renders this Decision to rectify an error which has persisted in the chronicles of our history. In the final
analysis, the Court must strike down the Pork Barrel System as unconstitutional in view of the inherent defects in
the rules within which it operates. To recount, insofar as it has allowed legislators to wield, in varying gradations,
non-oversight, post-enactment authority in vital areas of budget execution, the system has violated the principle of
separation of powers; insofar as it has conferred unto legislators the power of appropriation by giving them
personal, discretionary funds from which they are able to fund specific projects which they themselves determine, it
has similarly violated the principle of non-delegability of legislative power ; insofar as it has created a system of
budgeting wherein items are not textualized into the appropriations bill, it has flouted the prescribed procedure of
presentment and, in the process, denied the President the power to veto items ; insofar as it has diluted the
effectiveness of congressional oversight by giving legislators a stake in the affairs of budget execution, an aspect of
governance which they may be called to monitor and scrutinize, the system has equally impaired public
accountability ; insofar as it has authorized legislators, who are national officers, to intervene in affairs of purely
local nature, despite the existence of capable local institutions, it has likewise subverted genuine local autonomy ;
and again, insofar as it has conferred to the President the power to appropriate funds intended by law for energy-
related purposes only to other purposes he may deem fit as well as other public funds under the broad
classification of "priority infrastructure development projects," it has once more transgressed the principle of non-
delegability.
For as long as this nation adheres to the rule of law, any of the multifarious unconstitutional methods and
mechanisms the Court has herein pointed out should never again be adopted in any system of governance, by any
name or form, by any semblance or similarity, by any influence or effect. Disconcerting as it is to think that a system
so constitutionally unsound has monumentally endured, the Court urges the people and its co-stewards in
government to look forward with the optimism of change and the awareness of the past. At a time of great civic
unrest and vociferous public debate, the Court fervently hopes that its Decision today, while it may not purge all the
wrongs of society nor bring back what has been lost, guides this nation to the path forged by the Constitution so
that no one may heretofore detract from its cause nor stray from its course. After all, this is the Court‘s bounden
duty and no other‘s.
WHEREFORE, the petitions are PARTLY GRANTED. In view of the constitutional violations discussed in this
Decision, the Court hereby declares as UNCONSTITUTIONAL: (a) the entire 2013 PDAF Article; (b) all legal
provisions of past and present Congressional Pork Barrel Laws, such as the previous PDAF and CDF Articles and
the various Congressional Insertions, which authorize/d legislators – whether individually or collectively organized
into committees – to intervene, assume or participate in any of the various post-enactment stages of the budget
execution, such as but not limited to the areas of project identification, modification and revision of project
identification, fund release and/or fund realignment, unrelated to the power of congressional oversight; (c) all legal
provisions of past and present Congressional Pork Barrel Laws, such as the previous PDAF and CDF Articles and
the various Congressional Insertions, which confer/red personal, lump-sum allocations to legislators from which
they are able to fund specific projects which they themselves determine; (d) all informal practices of similar import
and effect, which the Court similarly deems to be acts of grave abuse of discretion amounting to lack or excess of
jurisdiction; and (e) the phrases (1) "and for such other purposes as may be hereafter directed by the President"
under Section 8 of Presidential Decree No. 910 and (2) "to finance the priority infrastructure development projects"
under Section 12 of Presidential Decree No. 1869, as amended by Presidential Decree No. 1993, for both failing
the sufficient standard test in violation of the principle of non-delegability of legislative power.
Accordingly, the Court‘s temporary injunction dated September 10, 2013 is hereby declared to be PERMANENT.
Thus, the disbursement/release of the remaining PDAF funds allocated for the year 2013, as well as for all previous
years, and the funds sourced from (1) the Malampaya Funds under the phrase "and for such other purposes as
may be hereafter directed by the President" pursuant to Section 8 of Presidential Decree No. 910, and (2) the
Presidential Social Fund under the phrase "to finance the priority infrastructure development projects" pursuant to
Section 12 of Presidential Decree No. 1869, as amended by Presidential Decree No. 1993, which are, at the time
this Decision is promulgated, not covered by Notice of Cash Allocations (NCAs) but only by Special Allotment
Release Orders (SAROs), whether obligated or not, are hereby ENJOINED. The remaining PDAF funds covered by
this permanent injunction shall not be disbursed/released but instead reverted to the unappropriated surplus of the
general fund, while the funds under the Malampaya Funds and the Presidential Social Fund shall remain therein to
be utilized for their respective special purposes not otherwise declared as unconstitutional.
On the other hand, due to improper recourse and lack of proper substantiation, the Court hereby DENIES
petitioners‘ prayer seeking that the Executive Secretary and/or the Department of Budget and Management be
ordered to provide the public and the Commission on Audit complete lists/schedules or detailed reports related to
the availments and utilization of the funds subject of these cases. Petitioners‘ access to official documents already
available and of public record which are related to these funds must, however, not be prohibited but merely
subjected to the custodian‘s reasonable regulations or any valid statutory prohibition on the same. This denial is
without prejudice to a proper mandamus case which they or the Commission on Audit may choose to pursue
through a separate petition.
The Court also DENIES petitioners prayer to order the inclusion of the funds subject of these cases in the
budgetary deliberations of Congress as the same is a matter left to the prerogative of the political branches of
government.
Finally, the Court hereby DIRECTS all prosecutorial organs of the government to, within the bounds of reasonable
dispatch, investigate and accordingly prosecute all government officials and/or private individuals for possible
criminal offenses related to the irregular, improper and/or unlawful disbursement/utilization of all funds under the
Pork Barrel System.
This Decision is immediately executory but prospective in effect.
SO ORDERED.

PELAEZ vs. AUDITOR GENERAL

G.R. No. L-23825 December 24, 1965

DECISION
During the period from September 4 to October 29, 1964 the President of the Philippines, purporting to act pursuant
to Section 68 of the Revised Administrative Code, issued Executive Orders Nos. 93 to 121, 124 and 126 to 129;
creating thirty-three (33) municipalities enumerated in the margin.1 Soon after the date last mentioned, or on
November 10, 1964 petitioner Emmanuel Pelaez, as Vice President of the Philippines and as taxpayer, instituted
the present special civil action, for a writ of prohibition with preliminary injunction, against the Auditor General, to
restrain him, as well as his representatives and agents, from passing in audit any expenditure of public funds in
implementation of said executive orders and/or any disbursement by said municipalities.
Petitioner alleges that said executive orders are null and void, upon the ground that said Section 68 has been
impliedly repealed by Republic Act No. 2370 and constitutes an undue delegation of legislative power. Respondent
maintains the contrary view and avers that the present action is premature and that not all proper parties —
referring to the officials of the new political subdivisions in question — have been impleaded. Subsequently, the
mayors of several municipalities adversely affected by the aforementioned executive orders — because the latter
have taken away from the former the barrios composing the new political subdivisions — intervened in the case.
Moreover, Attorneys Enrique M. Fernando and Emma Quisumbing-Fernando were allowed to and did appear
as amici curiae.
The third paragraph of Section 3 of Republic Act No. 2370, reads:
Barrios shall not be created or their boundaries altered nor their names changed except under the provisions of this
Act or by Act of Congress.
Pursuant to the first two (2) paragraphs of the same Section 3:
All barrios existing at the time of the passage of this Act shall come under the provisions hereof.
Upon petition of a majority of the voters in the areas affected, a new barrio may be created or the name of an
existing one may be changed by the provincial board of the province, upon recommendation of the council of the
municipality or municipalities in which the proposed barrio is stipulated. The recommendation of the municipal
council shall be embodied in a resolution approved by at least two-thirds of the entire membership of the said
council: Provided, however, That no new barrio may be created if its population is less than five hundred persons.
Hence, since January 1, 1960, when Republic Act No. 2370 became effective, barrios may “not be created or their
boundaries altered nor their names changed” except by Act of Congress or of the corresponding provincial board
“upon petition of a majority of the voters in the areas affected” and the “recommendation of the council of the
municipality or municipalities in which the proposed barrio is situated.” Petitioner argues, accordingly: “If the
President, under this new law, cannot even create a barrio, can he create a municipality which is composed of
several barrios, since barrios are units of municipalities?”
Respondent answers in the affirmative, upon the theory that a new municipality can be created without creating
new barrios, such as, by placing old barrios under the jurisdiction of the new municipality. This theory overlooks,
however, the main import of the petitioner’s argument, which is that the statutory denial of the presidential authority
to create a new barrio implies a negation of the bigger power to create municipalities, each of which consists of
several barrios. The cogency and force of this argument is too obvious to be denied or even questioned. Founded
upon logic and experience, it cannot be offset except by a clear manifestation of the intent of Congress to the
contrary, and no such manifestation, subsequent to the passage of Republic Act No. 2379, has been brought to our
attention.
Moreover, section 68 of the Revised Administrative Code, upon which the disputed executive orders are based,
provides:
The (Governor-General) President of the Philippines may by executive order define the boundary, or boundaries, of
any province, subprovince, municipality, [township] municipal district, or other political subdivision, and increase or
diminish the territory comprised therein, may divide any province into one or more subprovinces, separate any
political division other than a province, into such portions as may be required, merge any of such subdivisions or
portions with another, name any new subdivision so created, and may change the seat of government within any
subdivision to such place therein as the public welfare may require: Provided, That the authorization of the
(Philippine Legislature) Congress of the Philippines shall first be obtained whenever the boundary of any province
or subprovince is to be defined or any province is to be divided into one or more subprovinces. When action by the
(Governor-General) President of the Philippines in accordance herewith makes necessary a change of the territory
under the jurisdiction of any administrative officer or any judicial officer, the (Governor-General) President of the
Philippines, with the recommendation and advice of the head of the Department having executive control of such
officer, shall redistrict the territory of the several officers affected and assign such officers to the new districts so
formed.
Upon the changing of the limits of political divisions in pursuance of the foregoing authority, an equitable distribution
of the funds and obligations of the divisions thereby affected shall be made in such manner as may be
recommended by the (Insular Auditor) Auditor General and approved by the (Governor-General) President of the
Philippines.
Respondent alleges that the power of the President to create municipalities under this section does not amount to
an undue delegation of legislative power, relying upon Municipality of Cardona vs. Municipality of Binañgonan (36
Phil. 547), which, he claims, has settled it. Such claim is untenable, for said case involved, not the creation of a new
municipality, but a mere transfer of territory — from an already existing municipality (Cardona) to another
municipality (Binañgonan), likewise, existing at the time of and prior to said transfer (See Gov’t of the P.I. ex rel.
Municipality of Cardona vs. Municipality, of Binañgonan [34 Phil. 518, 519-5201) — in consequence of the fixing
and definition, pursuant to Act No. 1748, of the common boundaries of two municipalities.
It is obvious, however, that, whereas the power to fix such common boundary, in order to avoid or settle conflicts of
jurisdiction between adjoining municipalities, may partake of an administrative nature — involving, as it does, the
adoption of means and ways to carry into effect the law creating said municipalities — the authority to create
municipal corporations is essentially legislative in nature. In the language of other courts, it is “strictly a legislative
function” (State ex rel. Higgins vs. Aicklen, 119 S. 425, January 2, 1959) or “solely and exclusively the exercise
of legislative power” (Udall vs. Severn, May 29, 1938, 79 P. 2d 347-349). As the Supreme Court of Washington has
put it (Territory ex rel. Kelly vs. Stewart, February 13, 1890, 23 Pac. 405, 409), “municipal corporations are purely
the creatures of statutes.”
Although1a Congress may delegate to another branch of the Government the power to fill in the details in the
execution, enforcement or administration of a law, it is essential, to forestall a violation of the principle of separation
of powers, that said law: (a) be complete in itself — it must set forth therein the policy to be executed, carried out or
implemented by the delegate2 — and (b) fix a standard — the limits of which are sufficiently determinate or
determinable — to which the delegate must conform in the performance of his functions. 2a Indeed, without a
statutory declaration of policy, the delegate would in effect, make or formulate such policy, which is the essence of
every law; and, without the aforementioned standard, there would be no means to determine, with reasonable
certainty, whether the delegate has acted within or beyond the scope of his authority.2b Hence, he could thereby
arrogate upon himself the power, not only to make the law, but, also — and this is worse — to unmake it, by
adopting measures inconsistent with the end sought to be attained by the Act of Congress, thus nullifying the
principle of separation of powers and the system of checks and balances, and, consequently, undermining the very
foundation of our Republican system.
Section 68 of the Revised Administrative Code does not meet these well settled requirements for a valid delegation
of the power to fix the details in the enforcement of a law. It does not enunciate any policy to be carried out or
implemented by the President. Neither does it give a standard sufficiently precise to avoid the evil effects above
referred to. In this connection, we do not overlook the fact that, under the last clause of the first sentence of Section
68, the President:
… may change the seat of the government within any subdivision to such place therein as the public welfare may
require.
It is apparent, however, from the language of this clause, that the phrase “as the public welfare may require”
qualified, not the clauses preceding the one just quoted, but only the place to which the seat of the government
may be transferred. This fact becomes more apparent when we consider that said Section 68 was originally Section
1 of Act No. 1748,3 which provided that, “whenever in the judgment of the Governor-General the public
welfare requires, he may, by executive order,” effect the changes enumerated therein (as in said section 68),
including the change of the seat of the government “to such place … as the public interest requires.” The opening
statement of said Section 1 of Act No. 1748 — which was not included in Section 68 of the Revised Administrative
Code — governed the time at which, or the conditions under which, the powers therein conferred could be
exercised; whereas the last part of the first sentence of said section referred exclusively to the place to which the
seat of the government was to be transferred.
At any rate, the conclusion would be the same, insofar as the case at bar is concerned, even if we assumed that
the phrase “as the public welfare may require,” in said Section 68, qualifies all other clauses thereof. It is true that
in Calalang vs. Williams (70 Phil. 726) and People vs. Rosenthal (68 Phil. 328), this Court had upheld “public
welfare” and “public interest,” respectively, as sufficient standards for a valid delegation of the authority to execute
the law. But, the doctrine laid down in these cases — as all judicial pronouncements — must be construed in
relation to the specific facts and issues involved therein, outside of which they do not constitute precedents and
have no binding effect.4 The law construed in the Calalang case conferred upon the Director of Public Works, with
the approval of the Secretary of Public Works and Communications, the power to issue rules and regulations
to promote safe transit upon national roads and streets. Upon the other hand, the Rosenthal case referred to the
authority of the Insular Treasurer, under Act No. 2581, to issue and cancel certificates or permits for the
sale of speculative securities. Both cases involved grants to administrative officers of powers related to the exercise
of their administrative functions, calling for the determination of questions of fact.
Such is not the nature of the powers dealt with in section 68. As above indicated, the creation of municipalities, is
not an administrative function, but one which is essentially and eminently legislative in character. The question of
whether or not “public interest” demands the exercise of such power is not one of fact. It is “purely a
legislative question “(Carolina-Virginia Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310-313, 315-
318), or a political question (Udall vs. Severn, 79 P. 2d. 347-349). As the Supreme Court of Wisconsin has aptly
characterized it, “the question as to whether incorporation is for the best interest of the community in any case is
emphatically a question of public policy and statecraft” (In re Village of North Milwaukee, 67 N.W. 1033, 1035-
1037).
For this reason, courts of justice have annulled, as constituting undue delegation of legislative powers, state laws
granting the judicial department, the power to determine whether certain territories should be annexed to a
particular municipality (Udall vs. Severn, supra, 258-359); or vesting in a Commission the right to determine the
plan and frame of government of proposed villages and what functions shall be exercised by the same, although
the powers and functions of the village are specifically limited by statute (In re Municipal Charters, 86 Atl. 307-308);
or conferring upon courts the authority to declare a given town or village incorporated, and designate its metes and
bounds, upon petition of a majority of the taxable inhabitants thereof, setting forth the area desired to be included in
such village (Territory ex rel Kelly vs. Stewart, 23 Pac. 405-409); or authorizing the territory of a town, containing a
given area and population, to be incorporated as a town, on certain steps being taken by the inhabitants thereof
and on certain determination by a court and subsequent vote of the inhabitants in favor thereof, insofar as the court
is allowed to determine whether the lands embraced in the petition “ought justly” to be included in the village, and
whether the interest of the inhabitants will be promoted by such incorporation, and to enlarge and diminish the
boundaries of the proposed village “as justice may require” (In re Villages of North Milwaukee, 67 N.W. 1035-1037);
or creating a Municipal Board of Control which shall determine whether or not the laying out, construction or
operation of a toll road is in the “public interest” and whether the requirements of the law had been complied with, in
which case the board shall enter an order creating a municipal corporation and fixing the name of the same
(Carolina-Virginia Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310).
Insofar as the validity of a delegation of power by Congress to the President is concerned, the case of Schechter
Poultry Corporation vs. U.S. (79 L. Ed. 1570) is quite relevant to the one at bar. The Schechter case involved the
constitutionality of Section 3 of the National Industrial Recovery Act authorizing the President of the United States
to approve “codes of fair competition” submitted to him by one or more trade or industrial associations or
corporations which “impose no inequitable restrictions on admission to membership therein and are truly
representative,” provided that such codes are not designed “to promote monopolies or to eliminate or oppress small
enterprises and will not operate to discriminate against them, and will tend to effectuate the policy” of said Act. The
Federal Supreme Court held:
To summarize and conclude upon this point: Sec. 3 of the Recovery Act is without precedent. It supplies no
standards for any trade, industry or activity. It does not undertake to prescribe rules of conduct to be applied to
particular states of fact determined by appropriate administrative procedure. Instead of prescribing rules of conduct,
it authorizes the making of codes to prescribe them. For that legislative undertaking, Sec. 3 sets up no standards,
aside from the statement of the general aims of rehabilitation, correction and expansion described in Sec. 1. In view
of the scope of that broad declaration, and of the nature of the few restrictions that are imposed, the discretion of
the President in approving or prescribing codes, and thus enacting laws for the government of trade and industry
throughout the country, is virtually unfettered. We think that the code making authority thus conferred is an
unconstitutional delegation of legislative power.
If the term “unfair competition” is so broad as to vest in the President a discretion that is “virtually unfettered.” and,
consequently, tantamount to a delegation of legislative power, it is obvious that “public welfare,” which has even a
broader connotation, leads to the same result. In fact, if the validity of the delegation of powers made in Section 68
were upheld, there would no longer be any legal impediment to a statutory grant of authority to the President to do
anything which, in his opinion, may be required by public welfare or public interest. Such grant of authority would be
a virtual abdication of the powers of Congress in favor of the Executive, and would bring about a total collapse of
the democratic system established by our Constitution, which it is the special duty and privilege of this Court to
uphold.
It may not be amiss to note that the executive orders in question were issued after the legislative bills for the
creation of the municipalities involved in this case had failed to pass Congress. A better proof of the fact that the
issuance of said executive orders entails the exercise of purely legislative functions can hardly be given.
Again, Section 10 (1) of Article VII of our fundamental law ordains:
The President shall have control of all the executive departments, bureaus, or offices, exercise general supervision
over all local governments as may be provided by law, and take care that the laws be faithfully executed.
The power of control under this provision implies the right of the President to interfere in the exercise of such
discretion as may be vested by law in the officers of the executive departments, bureaus, or offices of the national
government, as well as to act in lieu of such officers. This power is denied by the Constitution to the Executive,
insofar as local governments are concerned. With respect to the latter, the fundamental law permits him to wield no
more authority than that of checking whether said local governments or the officers thereof perform their duties as
provided by statutory enactments. Hence, the President cannot interfere with local governments, so long as the
same or its officers act Within the scope of their authority. He may not enact an ordinance which the municipal
council has failed or refused to pass, even if it had thereby violated a duty imposed thereto by law, although he may
see to it that the corresponding provincial officials take appropriate disciplinary action therefor. Neither may he vote,
set aside or annul an ordinance passed by said council within the scope of its jurisdiction, no matter how patently
unwise it may be. He may not even suspend an elective official of a regular municipality or take any disciplinary
action against him, except on appeal from a decision of the corresponding provincial board. 5
Upon the other hand if the President could create a municipality, he could, in effect, remove any of its officials, by
creating a new municipality and including therein the barrio in which the official concerned resides, for his office
would thereby become vacant.6 Thus, by merely brandishing the power to create a new municipality (if he had it),
without actually creating it, he could compel local officials to submit to his dictation, thereby, in effect, exercising
over them the power of control denied to him by the Constitution.
Then, also, the power of control of the President over executive departments, bureaus or offices implies no
more than the authority to assume directly the functions thereof or to interfere in the exercise of discretion by its
officials. Manifestly, such control does not include the authority either to abolish an executive department or bureau,
or to create a new one. As a consequence, the alleged power of the President to create municipal corporations
would necessarily connote the exercise by him of an authority even greater than that of control which he has over
the executive departments, bureaus or offices. In other words, Section 68 of the Revised Administrative Code does
not merely fail to comply with the constitutional mandate above quoted. Instead of giving the President less power
over local governments than that vested in him over the executive departments, bureaus or offices, it reverses the
process and does the exact opposite, by conferring upon him more power over municipal corporations than that
which he has over said executive departments, bureaus or offices.
In short, even if it did entail an undue delegation of legislative powers, as it certainly does, said Section 68, as part
of the Revised Administrative Code, approved on March 10, 1917, must be deemed repealed by the subsequent
adoption of the Constitution, in 1935, which is utterly incompatible and inconsistent with said statutory enactment. 7
There are only two (2) other points left for consideration, namely, respondent’s claim (a) that “not all the proper
parties” — referring to the officers of the newly created municipalities — “have been impleaded in this case,” and
(b) that “the present petition is premature.”
As regards the first point, suffice it to say that the records do not show, and the parties do not claim, that the
officers of any of said municipalities have been appointed or elected and assumed office. At any rate, the Solicitor
General, who has appeared on behalf of respondent Auditor General, is the officer authorized by law “to act and
represent the Government of the Philippines, its offices and agents, in any official investigation, proceeding or
matter requiring the services of a lawyer” (Section 1661, Revised Administrative Code), and, in connection with the
creation of the aforementioned municipalities, which involves a political, not proprietary, function, said local officials,
if any, are mere agents or representatives of the national government. Their interest in the case at bar has,
accordingly, been, in effect, duly represented.8
With respect to the second point, respondent alleges that he has not as yet acted on any of the executive order & in
question and has not intimated how he would act in connection therewith. It is, however, a matter of common,
public knowledge, subject to judicial cognizance, that the President has, for many years, issued executive orders
creating municipal corporations and that the same have been organized and in actual operation, thus indicating,
without peradventure of doubt, that the expenditures incidental thereto have been sanctioned, approved or passed
in audit by the General Auditing Office and its officials. There is no reason to believe, therefore, that respondent
would adopt a different policy as regards the new municipalities involved in this case, in the absence of an
allegation to such effect, and none has been made by him.
WHEREFORE, the Executive Orders in question are hereby declared NULL and VOID ab initio and the
respondent PERMANENTLY RESTRAINED from passing in audit any expenditure of public funds in
implementation of said Executive Orders or any disbursement by the municipalities above referred to. It is SO
ORDERED.

ABAKADA GURO PARTY LIST vs. ERMITA

G.R. No. 168056 September 1, 2005

PIMENTEL, JR. vs. ERMITA

G.R. No. 168207

ASSOCIATION OF PILIPINAS SHELL DEALERS vs. PURISIMA

G.R. No. 168461

ESCUDERO vs. PURISIMA

G.R. No. 168463

GARCIA, JR. vs. ERMITA

G.R. No. 168730

DECISION
The expenses of government, having for their object the interest of all, should be borne by everyone, and the more
man enjoys the advantages of society, the more he ought to hold himself honored in contributing to those
expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments for
health workers, and wider coverage for full value-added tax benefits … these are the reasons why Republic Act No.
9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, the Court even with its extensive constitutional
power of review, cannot probe. The petitioners in these cases, however, question not only the wisdom of the law,
but also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners failed
to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
 LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate Bill
No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways and
Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. Singson
introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. On
January 27, 2005, the House of Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F. Baterina,
and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No. 3555. The House
Committee on Ways and Means approved the bill on February 2, 2005. The President also certified it as urgent on
February 8, 2005. The House of Representatives approved the bill on second and third reading on February 28,
2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7, 2005, "in
substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and 3705."
Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both
sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill
on March 11, 2005, and was approved by the Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a
committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No. 3705,
and Senate Bill No. 1950, "after having met and discussed in full free and conference," recommended the approval
of its report, which the Senate did on May 10, 2005, and with the House of Representatives agreeing thereto the
next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the
President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337. 5 When said date came, the Court issued a temporary
restraining order, effective immediately and continuing until further orders, enjoining respondents from enforcing
and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr.
Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order on July 1,
2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little background.
You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5 o’clock in the afternoon. But
before that, there was a lot of complaints aired on television and on radio. Some people in a gas station were
complaining that the gas prices went up by 10%. Some people were complaining that their electric bill will go up by
10%. Other times people riding in domestic air carrier were complaining that the prices that they’ll have to pay
would have to go up by 10%. While all that was being aired, per your presentation and per our own understanding
of the law, that’s not true. It’s not true that the e-vat law necessarily increased prices by 10% uniformly isn’t it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that granted the Petroleum
companies some subsidy . . . interrupted
J. PANGANIBAN : That’s correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the Excise Tax
and the import duties. That is why, it is not correct to say that the VAT as to petroleum dealers increased prices by
10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the E-Vat
tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the neighborhood of 7%?
We are not going into exact figures I am just trying to deliver a point that different industries, different products,
different services are hit differently. So it’s not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : You’re right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a Sales
Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating measure. So,
therefore, there is no justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day, were being
increased arbitrarily by 10%. And that’s one reason among many others this Court had to issue TRO because of
the confusion in the implementation. That’s why we added as an issue in this case, even if it’s tangentially taken up
by the pleadings of the parties, the confusion in the implementation of the E-vat. Our people were subjected to the
mercy of that confusion of an across the board increase of 10%, which you yourself now admit and I think even the
Government will admit is incorrect. In some cases, it should be 3% only, in some cases it should be 6% depending
on these mitigating measures and the location and situation of each product, of each service, of each company,
isn’t it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO pending the clarification of all these
and we wish the government will take time to clarify all these by means of a more detailed implementing rules, in
case the law is upheld by this Court. . . .6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on
May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of
goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT
on sale of services and use or lease of properties. These questioned provisions contain a
uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate
to 12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1
½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the
ground that it amounts to an undue delegation of legislative power, petitioners also contend that the increase in the
VAT rate to 12% contingent on any of the two conditions being satisfied violates the due process clause embodied
in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the people, in that:
(1) the 12% increase is ambiguous because it does not state if the rate would be returned to the original 10% if the
conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is supposed to be an incentive to
the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based on
fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral
Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill laid down in Article VI,
Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers,
Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall be
amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds One Million Pesos
(₱1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be credited
against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and properties)
and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and
confiscatory.
Petitioners’ argument is premised on the constitutional right of non-deprivation of life, liberty or property without due
process of law under Article III, Section 1 of the Constitution. According to petitioners, the contested sections
impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input tax partakes
the nature of a property that may not be confiscated, appropriated, or limited without due process of law. Petitioners
further contend that like any other property or property right, the input tax credit may be transferred or disposed of,
and that by limiting the same, the government gets to tax a profit or value-added even if there is no profit or value-
added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has a high
ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government, is not
based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the
Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition
for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of Article
VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions present in
Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125, 7 148, 151,
236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the Constitution,
which provides that all appropriation, revenue or tariff bills shall originate exclusively in the House of
Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005,
alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect allows
VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle that tax
collection and revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia further
claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of Article
VI, Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
 The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents
contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its
validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral
proceedings, exclusive origination of revenue measures and the power of the Senate concomitant thereto, have
already been settled. With regard to the issue of undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no discretion to the President but to increase the rate to
12% once any of the two conditions provided therein arise.
Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation on the
creditable input tax, the 60-month amortization on the purchase or importation of capital goods exceeding
₱1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and confiscatory,
and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda. A reform
in the value-added system of taxation is the core revenue measure that will tilt the balance towards a sustainable
macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of
R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as
the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or
properties and services.8 Being an indirect tax on expenditure, the seller of goods or services may pass on the
amount of tax paid to the buyer,9 with the seller acting merely as a tax collector.10 The burden of VAT is intended to
fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in,
without transferring the burden to someone else.11 Examples are individual and corporate income taxes, transfer
taxes, and residence taxes.12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode.
Prior to 1978, the system was a single-stage tax computed under the "cost deduction method" and was payable
only by the original sellers. The single-stage system was subsequently modified, and a mixture of the "cost
deduction method" and "tax credit method" was used to determine the value-added tax payable.13 Under the "tax
credit method," an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid
on its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was
rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the Improved VAT
Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently beleaguered R.A. No. 9337, also
referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its
authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition to
the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body for,
as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be utterly impracticable to
transact the business of the nation, either at all, or at least with decency, deliberation, and order."19 Thus,
Article VI, Section 16 (3) of the Constitution provides that "each House may determine the rules of its proceedings."
Pursuant to this inherent constitutional power to promulgate and implement its own rules of procedure, the
respective rules of each house of Congress provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on the amendment
to any bill or joint resolution, the differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support the
House Bill. If the differences with the Senate are so substantial that they materially impair the House Bill, the panel
shall report such fact to the House for the latter’s appropriate action.
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed, sufficiently explicit statement of
the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting
thereon. The House shall vote on the Conference Committee Report in the same manner and procedure as it votes
on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any bill
or joint resolution, the differences shall be settled by a conference committee of both Houses which shall meet
within ten (10) days after their composition. The President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in, or
amendments to the subject measure, and shall be signed by a majority of the members of each House panel,
voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof with
the explanatory statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by any
constitutional provision, where the two houses of Congress find themselves in disagreement over changes or
amendments introduced by the other house in a legislative bill. Given that one of the most basic powers of the
legislative branch is to formulate and implement its own rules of proceedings and to discipline its members, may the
Court then delve into the details of how Congress complies with its internal rules or how it conducts its business of
passing legislation? Note that in the present petitions, the issue is not whether provisions of the rules of both
houses creating the bicameral conference committee are unconstitutional, but whether the bicameral conference
committee has strictly complied with the rules of both houses, thereby remaining within the jurisdiction
conferred upon it by Congress.
In the recent case of Fariñas vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated and
emphasized its adherence to the "enrolled bill doctrine," thus, declining therein petitioners’ plea for the Court to go
behind the enrolled copy of the bill. Assailed in said case was Congress’s creation of two sets of bicameral
conference committees, the lack of records of said committees’ proceedings, the alleged violation of said
committees of the rules of both houses, and the disappearance or deletion of one of the provisions in the
compromise bill submitted by the bicameral conference committee. It was argued that such irregularities in the
passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President and
the certification of the Secretaries of both Houses of Congress that it was passed are conclusive of its due
enactment. A review of cases reveals the Court’s consistent adherence to the rule. The Court finds no reason to
deviate from the salutary rule in this case where the irregularities alleged by the petitioners mostly
involved the internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference Committee by
the House. This Court is not the proper forum for the enforcement of these internal rules of Congress,
whether House or Senate. Parliamentary rules are merely procedural and with their observance the courts
have no concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be
resolved in its favor.The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to
inquire into allegations that, in enacting a law, a House of Congress failed to comply with its own rules, in
the absence of showing that there was a violation of a constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared that ‘the rules adopted by
deliberative bodies are subject to revocation, modification or waiver at the pleasure of the body adopting
them.’ And it has been said that "Parliamentary rules are merely procedural, and with their observance, the
courts have no concern. They may be waived or disregarded by the legislative body." Consequently, "mere
failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative body) when
the requisite number of members have agreed to a particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities
committed by the conference committee in introducing changes or deleting provisions in the House and Senate
bills. Akin to the Fariñas case,22 the present petitions also raise an issue regarding the actions taken by the
conference committee on matters regarding Congress’ compliance with its own internal rules. As stated earlier, one
of the most basic and inherent power of the legislature is the power to formulate rules for its proceedings and the
discipline of its members. Congress is the best judge of how it should conduct its own business expeditiously and in
the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that said
members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to
questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the internal
proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance,23 the
Court already made the pronouncement that "[i]f a change is desired in the practice [of the Bicameral
Conference Committee] it must be sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each house." 24 To date, Congress has not seen it fit to
make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the
bicameral conference committee to be very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral
conference committees, the Court deems it necessary to dwell on the issue. The Court observes that there was a
necessity for a conference committee because a comparison of the provisions of House Bill Nos. 3555 and 3705 on
one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As pointed out in
the petitions, said disagreements were as follows:
House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT on every Provides for 12% VAT in general on Provides for a single rate of 10%
sale of goods or properties sales of goods or properties and VAT on sale of goods or
(amending Sec. 106 of NIRC); reduced rates for sale of certain properties (amending Sec. 106 of
12% VAT on importation of locally manufactured goods and NIRC), 10% VAT on sale of
goods (amending Sec. 107 of petroleum products and raw materials services including sale of
NIRC); and 12% VAT on sale of to be used in the manufacture thereof electricity by generation
services and use or lease of (amending Sec. 106 of NIRC); 12% companies, transmission and
properties (amending Sec. 108 VAT on importation of goods and distribution companies, and use
of NIRC) reduced rates for certain imported or lease of properties (amending
products including petroleum Sec. 108 of NIRC)
products (amending Sec. 107 of
NIRC); and 12% VAT on sale of
services and use or lease of
properties and a reduced rate for
certain services including power
generation (amending Sec. 108 of
NIRC)
With regard to the "no pass-on" provision
No similar provision Provides that the VAT imposed on Provides that the VAT imposed on
power generation and on the sale of sales of electricity by generation
petroleum products shall be absorbed companies and services of
by generation companies or sellers, transmission companies and
respectively, and shall not be passed distribution companies, as well as
on to consumers those of franchise grantees of
electric utilities shall not apply to
residential
end-users. VAT shall be absorbed
by generation, transmission, and
distribution companies.
With regard to 70% limit on input tax credit
Provides that the input tax credit No similar provision Provides that the input tax credit
for capital goods on which a VAT for capital goods on which a VAT
has been paid shall be equally has been paid shall be equally
distributed over 5 years or the distributed over 5 years or the
depreciable life of such capital depreciable life of such capital
goods; the input tax credit for goods; the input tax credit for
goods and services other than goods and services other than
capital goods shall not exceed capital goods shall not exceed
5% of the total amount of such 90% of the output VAT.
goods and services; and for
persons engaged in retail trading
of goods, the allowable input tax
credit shall not exceed 11% of
the total amount of goods
purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise taxes
No similar provision No similar provision Provided for amendments to
several NIRC provisions
regarding corporate income,
percentage, franchise and
excise taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what rate
of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation, transmission and distribution
companies should not be passed on to consumers, as proposed in the Senate bill, or both the VAT imposed on
electricity generation, transmission and distribution companies and the VAT imposed on sale of petroleum products
should not be passed on to consumers, as proposed in the House bill; (3) in what manner input tax credits should
be limited; (4) and whether the NIRC provisions on corporate income taxes, percentage, franchise and excise taxes
should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the
Bicameral Conference Committee was mandated by the rules of both houses of Congress to act on the same by
settling said differences and/or disagreements. The Bicameral Conference Committee acted on the disagreeing
provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference
Committee Report that the Bicameral Conference Committee tried to bridge the gap in the difference between the
10% VAT rate proposed by the Senate, and the various rates with 12% as the highest VAT rate proposed by the
House, by striking a compromise whereby the present 10% VAT rate would be retained until certain conditions
arise, i.e., the value-added tax collection as a percentage of gross domestic product (GDP) of the previous year
exceeds 2 4/5%, or National Government deficit as a percentage of GDP of the previous year exceeds 1½%, when
the President, upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12% effective
January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission and
distribution companies should not be passed on to consumers or whether both the VAT imposed on electricity
generation, transmission and distribution companies and the VAT imposed on sale of petroleum products may be
passed on to consumers, the Bicameral Conference Committee chose to settle such disagreement by altogether
deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral Conference
Committee decided to adopt the position of the House by putting a limitation on the amount of input tax that may be
credited against the output tax, although it crafted its own language as to the amount of the limitation on input tax
credits and the manner of computing the same by providing thus:
(A) Creditable Input Tax. – . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for which
deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the
fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds one million Pesos (₱1,000,000.00): PROVIDED, however, that if the estimated useful life of the
capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over
such shorter period: . . .
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried over
from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the
output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, percentage
and excise taxes, the conference committee decided to include such amendments and basically adopted the
provisions found in Senate Bill No. 1950, with some changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral
Conference Committee is mandated to settle the differences between the disagreeing provisions in the House bill
and the Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize."25 To reconcile or harmonize
disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific provisions of either
the House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill
would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions
were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or intent that is
wholly foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate is
retained until such time that certain conditions arise when the 12% VAT wanted by the House shall be imposed,
appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two houses of
Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT should be imposed
on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral Conference
Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the reason for
deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should be
a beneficiary of legislative grace, neither should any sector be discriminated on. The VAT is an indirect tax. It is a
pass on-tax. And let’s keep it plain and simple. Let’s not confuse the bill and put a no pass-on provision. Two-
thirds of the world have a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a no pass-
though provision. So, the thinking of the Senate is basically simple, let’s keep the VAT simple. 26 (Emphasis
supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed the support
of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee
came to a compromise on the percentage rate of the limitation or cap on such input tax credit, but again, the
change introduced by the Bicameral Conference Committee was totally within the intent of both houses to put a cap
on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives, one
of the major objectives was to "plug a glaring loophole in the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax
credit, we are capping a major leakage that has placed our collection efforts at an apparent disadvantage." 28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No.
1950, since said provisions were among those referred to it, the conference committee had to act on the same and
it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to subjects of
the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to lack
or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases of Philippine
Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the long-standing
legislative practice of giving said conference committee ample latitude for compromising differences between the
Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new provision that is not
found either in the House bill or in the Senate bill. If the committee can propose an amendment consisting of one or
two provisions, there is no reason why it cannot propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such amendment is germane to the subject of the bills before
the committee. After all, its report was not final but needed the approval of both houses of Congress to become
valid as an act of the legislative department. The charge that in this case the Conference Committee acted as a
third legislative chamber is thus without any basis. 31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to its Members three days before its passage, except
when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency.
Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays entered in the Journal.
Petitioners’ argument that the practice where a bicameral conference committee is allowed to add or delete
provisions in the House bill and the Senate bill after these had passed three readings is in effect a circumvention of
the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate from
its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committee’s Report in these cases must have undergone three
readings in each of the two houses. If that be the case, there would be no end to negotiation since each house may
seek modification of the compromise bill. . . .
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in either
house of Congress, not to the conference committee report. 32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by each
house of Congress with regard to bills initiated in each of said respective houses, before said bill is
transmitted to the other house for its concurrence or amendment. Verily, to construe said provision in a way
as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this would
mean that the other house of Congress would be deprived of its constitutional power to amend or introduce
changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by
the Bicameral Conference Committee of amendments and modifications to disagreeing provisions in bills that have
been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of Revenue
Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate income
taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit:
Section 27 Rates of Income Tax on Domestic Corporation
28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House. They
aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107, 108, 110 and 114 of the
NIRC, while House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of the
NIRC; thus, the other sections of the NIRC which the Senate amended but which amendments were not found in
the House bills are not intended to be amended by the House of Representatives. Hence, they argue that since the
proposed amendments did not originate from the House, such amendments are a violation of Article VI, Section 24
of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives but the Senate may
propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move for
amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of said House bills to
the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on
the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the introduction by the
Senate of provisions not dealing directly with the value- added tax, which is the only kind of tax being amended in
the House bills, still within the purview of the constitutional provision authorizing the Senate to propose or concur
with amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law – but the revenue bill – which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the
House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. . . . At
this point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statute – and not only the bill which initiated the legislative process culminating in the
enactment of the law – must substantially be the same as the House bill would be to deny the Senate’s
power not only to "concur with amendments" but also to "propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House superior to the Senate.
…
…Given, then, the power of the Senate to propose amendments, the Senate can propose its own version
even with respect to bills which are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing
an increase of the public debt, private bills and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems from the national perspective. Both views
are thereby made to bear on the enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate
was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the
Constitution does not contain any prohibition or limitation on the extent of the amendments that may be introduced
by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in the
House bills are still in furtherance of the intent of the House in initiating the subject revenue bills. The Explanatory
Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later substituted by House
Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the country’s
serious financial problems. To do this, government expenditures must be strictly monitored and controlled and
revenues must be significantly increased. This may be easier said than done, but our fiscal authorities are still
optimistic the government will be operating on a balanced budget by the year 2009. In fact, several measures that
will result to significant expenditure savings have been identified by the administration. It is supported with a
credible package of revenue measures that include measures to improve tax administration and control the
leakages in revenues from income taxes and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of our
agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget by
the year 2009, we need to seize windows of opportunities which might seem poignant in the beginning, but
in the long run prove effective and beneficial to the overall status of our economy. One such opportunity is
a review of existing tax rates, evaluating the relevance given our present conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in sizeable
revenues for the government
to supplement our country’s serious financial problems, and improve tax administration and control of the leakages
in revenues from income taxes and value-added taxes. As these house bills were transmitted to the Senate, the
latter, approaching the measures from the point of national perspective, can introduce amendments within the
purposes of those bills. It can provide for ways that would soften the impact of the VAT measure on the
consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders of the
consumers. The sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on corporation were
included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3 billion in additional revenues
annually even while by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only ₱48.7 billion amount is from the VAT on twelve goods
and services. The rest of the tab – ₱10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should the
latter bear all the pain? Why should the fiscal salvation be only on the burden of the consumer?
The corporate world’s equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up to
2008 only. This will raise ₱10.5 billion a year. After that, the rate will slide back, not to its old rate of 32 percent, but
two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that will be
in effect for 1,200 days, while we put our fiscal house in order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief. We
would like to assure them that not because there is a light at the end of the tunnel, this government will keep on
making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to share
the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions in
the tax on income of corporations are germane to the purpose of the house bills which is to raise revenues for the
government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to the
VAT system, as these sections would cushion the effects of VAT on consumers. Considering that certain goods
and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, the consumer
would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a need to
amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to lessen the
effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we will
however bring down the excise tax on socially sensitive products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was taken from the
right. Rather, these sprang from our concern of softening the impact of VAT, so that the people can cushion the
blow of higher prices they will have to pay as a result of VAT. 36
The other sections amended by the Senate pertained to matters of tax administration which are necessary for the
implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the house
bills, which is to supplement our country’s fiscal deficit, among others. Thus, the Senate acted within its power to
propose those amendments.
SUBSTANTIVE ISSUES
 I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common that
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the
President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes
undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: provided, that the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. – There shall be levied, assessed and collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer
prior to the release of such goods from customs custody: Provided, That where the customs duties are determined
on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any: provided, further, that the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any
of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services: provided, that the President,
upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual
abdication by Congress of its exclusive power to tax because such delegation is not within the purview of Section
28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national
development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on the
sale or exchange of services, which cannot be included within the purview of tariffs under the exempted delegation
as the latter refers to customs duties, tolls or tribute payable upon merchandise to the government and usually
imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative power
to tax is contrary to republicanism. They insist that accountability, responsibility and transparency should dictate the
actions of Congress and they should not pass to the President the decision to impose taxes. They also argue that
the law also effectively nullified the President’s power of control, which includes the authority to set aside and nullify
the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate by the President
upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the conditions
provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the 12%
rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the principle of
no taxation without representation. They submit that the Secretary of Finance is not mandated to give a favorable
recommendation and he may not even give his recommendation. Moreover, they allege that no guiding standards
are provided in the law on what basis and as to how he will make his recommendation. They claim, nonetheless,
that any recommendation of the Secretary of Finance can easily be brushed aside by the President since the
former is a mere alter ego of the latter, such that, ultimately, it is the President who decides whether to impose the
increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has exclusive
cognizance of and is supreme in matters falling within its own constitutionally allocated sphere. 37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the
Latin maxim: potestas delegata non delegari potest which means "what has been delegated, cannot be
delegated."38 This doctrine is based on the ethical principle that such as delegated power constitutes not only a
right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through
the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power shall
be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives." The
powers which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively,
legislative. Purely legislative power, which can never be delegated, has been described as the authority to make a
complete law – complete as to the time when it shall take effect and as to whom it shall be applicable – and
to determine the expediency of its enactment.40 Thus, the rule is that in order that a court may be justified in
holding a statute unconstitutional as a delegation of legislative power, it must appear that the power involved is
purely legislative in nature – that is, one appertaining exclusively to the legislative department. It is the nature of the
power, and not the liability of its use or the manner of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized
limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if
the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the
delegate;41 and (b) fixes a standard — the limits of which are sufficiently determinate and determinable — to which
the delegate must conform in the performance of his functions.42 A sufficient standard is one which defines
legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates
the circumstances under which the legislative command is to be effected. 43 Both tests are intended to prevent a
total transference of legislative authority to the delegate, who is not allowed to step into the shoes of the legislature
and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent of
delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire whether
the statute was complete in all its terms and provisions when it left the hands of the legislature so that nothing was
left to the judgment of any other appointee or delegate of the legislature.
...
‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its
execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no
valid objection can be made.’
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on certain contingencies, as by proclamation of the executive
or the adoption by the people of a particular community. In Wayman vs. Southard, the Supreme Court of the United
States ruled that the legislature may delegate a power not legislative which it may itself rightfully exercise. The
power to ascertain facts is such a power which may be delegated. There is nothing essentially legislative in
ascertaining the existence of facts or conditions as the basis of the taking into effect of a law. That is a
mental process common to all branches of the government. Notwithstanding the apparent tendency, however,
to relax the rule prohibiting delegation of legislative authority on account of the complexity arising from social and
economic forces at work in this modern industrial age, the orthodox pronouncement of Judge Cooley in his work on
Constitutional Limitations finds restatement in Prof. Willoughby's treatise on the Constitution of the United States in
the following language — speaking of declaration of legislative power to administrative agencies: The principle
which permits the legislature to provide that the administrative agent may determine when the
circumstances are such as require the application of a law is defended upon the ground that at the time
this authority is granted, the rule of public policy, which is the essence of the legislative act, is determined
by the legislature. In other words, the legislature, as it is its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the administrative official is
not the legislative determination of what public policy demands, but simply the ascertainment of what the
facts of the case require to be done according to the terms of the law by which he is governed. The
efficiency of an Act as a declaration of legislative will must, of course, come from Congress, but the
ascertainment of the contingency upon which the Act shall take effect may be left to such agencies as it
may designate. The legislature, then, may provide that a law shall take effect upon the happening of future
specified contingencies leaving to some other person or body the power to determine when the specified
contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them; the
test is the completeness of the statute in all its terms and provisions when it leaves the hands of the legislature. To
determine whether or not there is an undue delegation of legislative power, the inquiry must be directed to the
scope and definiteness of the measure enacted. The legislative does not abdicate its functions when it
describes what job must be done, who is to do it, and what is the scope of his authority. For a complex
economy, that may be the only way in which the legislative process can go forward. A distinction has rightfully
been made between delegation of power to make the laws which necessarily involves a discretion as to
what it shall be, which constitutionally may not be done, and delegation of authority or discretion as to its
execution to be exercised under and in pursuance of the law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the legislature the necessary resources of flexibility and
practicability. (Emphasis supplied).48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to depend,
but the legislature must prescribe sufficient standards, policies or limitations on their authority. 49 While the power to
tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of
such power may be left to them, including the power to determine the existence of facts on which its operation
depends.50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not of
itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information and making
recommendations is the kind of subsidiary activity which the legislature may perform through its members, or which
it may delegate to others to perform. Intelligent legislation on the complicated problems of modern society is
impossible in the absence of accurate information on the part of the legislators, and any reasonable method of
securing such information is proper.51 The Constitution as a continuously operative charter of government does not
require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it
has declared to be prerequisite to application of legislative policy to particular facts and circumstances impossible
for Congress itself properly to investigate.52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 which
reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1
½%).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts
upon which enforcement and administration of the increase rate under the law is contingent. The legislature has
made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of the
executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of discretion. 53 Where the law is clear and
unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the
mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the
conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the law
specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a clear
directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into effect of the
12% VAT rate is based on the happening of a certain specified contingency, or upon the ascertainment of certain
facts or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law effectively
nullified the President’s power of control over the Secretary of Finance by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of Finance. The Court cannot also subscribe to the position of
petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the
recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of petitioners
Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are performed by and through the executive departments, and the
acts of the secretaries of such departments, such as the Department of Finance, performed and promulgated in the
regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of
the Chief Executive. The Secretary of Finance, as such, occupies a political position and holds office in an advisory
capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom confidence" and, in the
language of Attorney-General Cushing, is "subject to the direction of the President."55
In the present case, in making his recommendation to the President on the existence of either of the two conditions,
the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such instance,
he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative
department, to determine and declare the event upon which its expressed will is to take effect. 56 The Secretary of
Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate
them. His function is to gather and collate statistical data and other pertinent information and verify if any of the two
conditions laid out by Congress is present. His personality in such instance is in reality but a projection of that of
Congress. Thus, being the agent of Congress and not of the President, the President cannot alter or modify or
nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former for that of
the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a percentage
of GDP of the previous year exceeds one and one-half percent (1½%). If either of these two instances has
occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then
the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no undue delegation of
legislative power but only of the discretion as to the execution of a law. This is constitutionally
permissible.57 Congress does not abdicate its functions or unduly delegate power when it describes what job must
be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only
way in which the legislative process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative
power to tax is contrary to the principle of republicanism, the same deserves scant consideration. Congress did not
delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to
12% came from Congress and the task of the President is to simply execute the legislative policy. That Congress
chose to do so in such a manner is not within the province of the Court to inquire into, its task being to interpret the
law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the
conditions to bring about either or both the conditions precedent does not deserve any merit as this argument is
highly speculative. The Court does not rule on allegations which are manifestly conjectural, as these may not exist
at all. The Court deals with facts, not fancies; on realities, not appearances. When the Court acts on appearances
instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax burden
on the people. Petitioners also argue that the 12% increase, dependent on any of the 2 conditions set forth in the
contested provisions, is ambiguous because it does not state if the VAT rate would be returned to the original 10%
if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and unreasonable, as the people
are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein
are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It does not
provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is increased to
12%, the VAT collection goes below the 24/5 of the GDP of the previous year or that the national government deficit
as a percentage of GDP of the previous year does not exceed 1½%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be introduced
where none is provided for. Rewriting the law is a forbidden ground that only Congress may tread upon. 60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds none,
petitioners’ argument is, at best, purely speculative. There is no basis for petitioners’ fear of a fluctuating VAT rate
because the law itself does not provide that the rate should go back to 10% if the conditions provided in Sections 4,
5 and 6 are no longer present. The rule is that where the provision of the law is clear and unambiguous, so that
there is no occasion for the court's seeking the legislative intent, the law must be taken as it is, devoid of judicial
addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to
raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another
condition, i.e., the national government deficit as a percentage of GDP of the previous year exceeds one and one-
half percent (1 ½%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than 2.8%, it
means that government has weak or no capability of implementing the VAT or that VAT is not effective in the
function of the tax collection. Therefore, there is no value to increase it to 12% because such action will also be
ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of government
has reached a relatively sound position or is towards the direction of a balanced budget position. Therefore, there is
no need to increase the VAT rate since the fiscal house is in a relatively healthy position. Otherwise stated, if the
ratio is more than 1.5%, there is indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is mainly to
raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in
his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as
possible over and above what it brings into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government expenditures and their
variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the Bicameral
Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the country’s gloomy state of
economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90 percent
of our revenue is used for debt service. So, for every peso of revenue that we currently raise, 90 goes to debt
service. That’s interest plus amortization of our debt. So clearly, this is not a sustainable situation. That’s the first
fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow
money from that international financial markets. Our debt to GDP is approximately equal to our GDP. Again, that
shows you that this is not a sustainable situation.
The third thing that I’d like to point out is the environment that we are presently operating in is not as benign as
what it used to be the past five years.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in a period of basically global growth and low
interest rates. The past few months, we have seen an inching up, in fact, a rapid increase in the interest rates in the
leading economies of the world. And, therefore, our ability to borrow at reasonable prices is going to be challenged.
In fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at least based
on the forecast of most financial institutions. So, we were assuming that raising 80 billion would put us in a position
where we can then convince them to improve our ability to borrow at lower rates. But conditions have changed on
us because the interest rates have gone up. In fact, just within this room, we tried to access the market for a billion
dollars because for this year alone, the Philippines will have to borrow 4 billion dollars. Of that amount, we have
borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We were trying to access last
week and the market was not as favorable and up to now we have not accessed and we might pull back because
the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our deficit
reduction. Because it is deficit that is causing the increase of the debt and we are in what we call a debt spiral. The
more debt you have, the more deficit you have because interest and debt service eats and eats more of your
revenue. We need to get out of this debt spiral. And the only way, I think, we can get out of this debt spiral is really
have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe.
Whether the law is indeed sufficient to answer the state’s economic dilemma is not for the Court to judge. In
the Fariñas case, the Court refused to consider the various arguments raised therein that dwelt on the wisdom of
Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the
political branches of the government. It is not for this Court to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired results, whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular manner are matters for the judgment of the legislature, and the
serious conflict of opinions does not suffice to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy, given
that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation." 67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A.
No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending
Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are arbitrary,
oppressive, excessive and confiscatory. Their argument is premised on the constitutional right against deprivation
of life, liberty of property without due process of law, as embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are not
fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such
a conclusion. Absent such a showing, the presumption of validity must prevail. 68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax
that may be credited against the output tax. It states, in part: "[P]rovided, that the input tax inclusive of the input
VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT: …"
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a
VAT-registered person on the importation of goods or local purchase of good and services, including lease or use
of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the value-added
tax due on the sale or lease of taxable goods or properties or services by any person registered or required to
register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed. In
effect, a portion of the input tax that has already been paid cannot now be credited against the output tax.
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore,
the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less than 70% of the
output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a business’s books of accounts and remains creditable
in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that "if the input tax
exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters." In addition, Section
112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or refund for any unused
input taxes, to the extent that such input taxes have not been applied against the output taxes. Such unused input
tax may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly
contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the net effect that
there will be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that such
unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over provision of
Section 110(B) or that it may later on be refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on the
input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and
revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods.
Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he
paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be
paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over the
output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at the
taxpayer’s option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his input
tax only up to the extent of 70% of the output tax. In layman’s term, the value-added taxes that a person/taxpayer
paid and passed on to him by a seller can only be credited up to 70% of the value-added taxes that is due to him on
a taxable transaction. There is no retention of any tax collection because the person/taxpayer has already
previously paid the input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The party
directly liable for the payment of the tax is the seller.71 What only needs to be done is for the person/taxpayer to
apply or credit these input taxes, as evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of a
property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A
VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested
rights in statutory privileges. The state may change or take away rights, which were created by the law of the state,
although it may not take away property, which was vested by virtue of such rights. 72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable
from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of the
input tax paid on purchase or importation of goods and services by VAT-registered persons against the output tax
was introduced.73 This was adopted by the Expanded VAT Law (R.A. No. 7716),74 and The Tax Reform Act of 1997
(R.A. No. 8424).75 The right to credit input tax as against the output tax is clearly a privilege created by law, a
privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337, amending
Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition
and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds One million pesos (₱1,000,000.00): Provided, however, That if the estimated useful
life of the capital goods is less than five (5) years, as used for depreciation purposes, then the input VAT shall be
spread over such a shorter period: Provided, finally, That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser, lessee or license upon payment of the compensation,
rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase or
importation of capital goods with acquisition cost of ₱1 Million pesos, exclusive of the VAT component. Such
spread out only poses a delay in the crediting of the input tax. Petitioners’ argument is without basis because the
taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts to
a 4-year interest-free loan to the government.76 In the same breath, Congress also justified its move by saying that
the provision was designed to raise an annual revenue of 22.6 billion.77 The legislature also dispelled the fear that
the provision will fend off foreign investments, saying that foreign investors have other tax incentives provided by
law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign investments were not
deterred.78 Again, for whatever is the purpose of the 60-month amortization, this involves executive economic policy
and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable
transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Value-added Tax. – The Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on
account of each purchase of goods and services which are subject to the value-added tax imposed in Sections 106
and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross
payment thereof: Provided, That the payment for lease or use of properties or property rights to nonresident owners
shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor
or person in control of the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT
withholding system. The government in this case is constituted as a withholding agent with respect to their
payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3% on
gross payments for purchases of goods; 6% on gross payments for services supplied by contractors other than by
public works contractors; 8.5% on gross payments for services supplied by public work contractors; or 10% on
payment for the lease or use of properties or property rights to nonresident owners. Under the present Section
114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents, were deleted,
and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable,
means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of final
withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. – Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his
failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes withheld on certain income
payments are intended to equal or at least approximate the tax due of the payee on said income. … Taxes withheld
on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and
compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a 5% rate,
which constitutes as full payment of the tax payable on the transaction. This represents the net VAT payable of the
seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu of the actual input
VAT directly or attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat differently
taxable transactions with the government.80 This is supported by the fact that under the old provision, the 5% tax
withheld by the government remains creditable against the tax liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Creditable Value-added Tax. – The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and services rendered by contractors which
are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-
added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent
(6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall
be creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the
case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%):
Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be
subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control
of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s intention to treat
transactions with the government differently. Since it has not been shown that the class subject to the 5% final
withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as
petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to all those who deal
with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations No. 14-
2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides that should the actual
input tax exceed 5% of gross payments, the excess may form part of the cost. Equally, should the actual input tax
be less than 5%, the difference is treated as income.81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit or
value-added even if there is no profit or value-added.
Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a legal
joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the Court on this
point will only be, as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying nothing."
What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It need not take
an astute businessman to know that it is a matter of exception that a business will sell goods or services without
profit or value-added. It cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be deprived of
the same protection of laws which is enjoyed by other persons or other classes in the same place and in like
circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts
to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to presumption of
validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or invests
in capital equipment, or has several transactions with the government, is not based on real and substantial
differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of
taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of assessment,
valuation and collection. Petitioners’ alleged distinctions are based on variables that bear different consequences.
While the implementation of the law may yield varying end results depending on one’s profit margin and value-
added, the Court cannot go beyond what the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things without
distinction. This might in fact sometimes result in unequal protection. What the clause requires is equality among
equals as determined according to a valid classification. By classification is meant the grouping of persons or things
similar to each other in certain particulars and different from all others in these same particulars. 85
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmeña III and
Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The
proposed legislation seeks to amend the 70% limitation by increasing the same to 90%. This, according to
petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to say
that these are still proposed legislations. Until Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class
everywhere with all people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services.
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a
rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease
of properties. These same sections also provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final withholding
tax by the government. It must be stressed that the rule of uniform taxation does not deprive Congress of the power
to classify subjects of taxation, and only demands uniformity within the particular class. 87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%)
does not apply to sales of goods or services with gross annual sales or receipts not exceeding
₱1,500,000.00.88Also, basic marine and agricultural food products in their original state are still not subject to the
tax,89 thus ensuring that prices at the grassroots level will remain accessible. As was stated in Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in
business with an aggregate gross annual sales exceeding ₱200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, so
that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected
to be relatively lower and within the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those
with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the law entails,
the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e.,
transactions with gross annual sales and/or receipts not exceeding ₱1.5 Million. This acts as a equalizer because in
effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those
previously exempt. Excise taxes on petroleum products 91 and natural gas92 were reduced. Percentage tax on
domestic carriers was removed.93 Power producers are now exempt from paying franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the burden of
taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate, from a
previous 32%.95 Intercorporate dividends of non-resident foreign corporations are still subject to 15% final
withholding tax but the tax credit allowed on the corporation’s domicile was increased to 20%. 96 The Philippine
Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore. 97 Even the sale by an
artist of his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest largely
on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the smaller
business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted from Adam
Smith’s Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in
proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the
protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive
taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every
goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the
income earned by a person or profit margin marked by a business, such that the higher the income or profit margin,
the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or profit
margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or
businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply
provides is that Congress shall "evolve a progressive system of taxation." The Court stated in the Tolentino case,
thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall ‘evolve a progressive system of taxation.’ The constitutional provision has
been interpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much as possible, indirect taxes
should be minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977))
Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales
taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art.
VIII, §17 (1) of the 1973 Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are also
regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No.
7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4
amending §103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure
to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the plight of the
masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other cases, the
Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should
stand ready to afford relief. There are undoubtedly many wrongs the judicature may not correct, for instance, those
involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political or
social ills; We should not forget that the Constitution has judiciously allocated the powers of government to three
distinct and separate compartments; and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of each, knowing full well that one is not the
guardian of the others and that, for official wrong-doing, each may be brought to account, either by impeachment,
trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things considered, there
is no raison d'être for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207,
168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the
temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
SOUTHERN CROSS CEMENT CORPORATION vs. CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES
G.R. No. 158540. August 3, 2005

RESOLUTION
Cement is hardly an exciting subject for litigation. Still, the parties in this case have done their best to put up a
spirited advocacy of their respective positions, throwing in everything including the proverbial kitchen sink. At
present, the burden of passion, if not proof, has shifted to public respondents Department of Trade and Industry
(DTI) and private respondent Philippine Cement Manufacturers Corporation (Philcemcor), [1] who now seek
reconsideration of our Decision dated 8 July 2004 (Decision), which granted the petition of petitioner Southern
Cross Cement Corporation (Southern Cross).
This case, of course, is ultimately not just about cement. For respondents, it is about love of country and the
future of the domestic industry in the face of foreign competition. For this Court, it is about elementary statutory
construction, constitutional limitations on the executive power to impose tariffs and similar measures, and
obedience to the law. Just as much was asserted in the Decision, and the same holds true with this
present Resolution.
An extensive narration of facts can be found in the Decision.[2] As can well be recalled, the case centers on the
interpretation of provisions of Republic Act No. 8800, the Safeguard Measures Act (SMA), which was one of the
laws enacted by Congress soon after the Philippines ratified the General Agreement on Tariff and Trade (GATT)
and the World Trade Organization (WTO) Agreement.[3] The SMA provides the structure and mechanics for the
imposition of emergency measures, including tariffs, to protect domestic industries and producers from increased
imports which inflict or could inflict serious injury on them. [4]
A brief summary as to how the present petition came to be filed by Southern Cross. Philcemcor, an
association of at least eighteen (18) domestic cement manufacturers filed with the DTI a petition seeking the
imposition of safeguard measures on gray Portland cement, [5] in accordance with the SMA. After the DTI issued a
provisional safeguard measure,[6] the application was referred to the Tariff Commission for a formal investigation
pursuant to Section 9 of the SMA and its Implementing Rules and Regulations, in order to determine whether or not
to impose a definitive safeguard measure on imports of gray Portland cement. The Tariff Commission held public
hearings and conducted its own investigation, then on 13 March 2002, issued its Formal Investigation Report
(Report). The Report determined as follows:
The elements of serious injury and imminent threat of serious injury not having been established, it is hereby
recommended that no definitive general safeguard measure be imposed on the importation of gray Portland
cement.[7]
The DTI sought the opinion of the Secretary of Justice whether it could still impose a definitive safeguard
measure notwithstanding the negative finding of the Tariff Commission. After the Secretary of Justice opined that
the DTI could not do so under the SMA,[8] the DTI Secretary then promulgated a Decision[9] wherein he expressed
the DTIs disagreement with the conclusions of the Tariff Commission, but at the same time, ultimately denying
Philcemcors application for safeguard measures on the ground that the he was bound to do so in light of the Tariff
Commissions negative findings.[10]
Philcemcor challenged this Decision of the DTI Secretary by filing with the Court of Appeals a Petition for
Certiorari, Prohibition and Mandamus[11] seeking to set aside the DTI Decision, as well as the Tariff Commissions
Report. It prayed that the Court of Appeals direct the DTI Secretary to disregard the Report and to render judgment
independently of the Report. Philcemcor argued that the DTI Secretary, vested as he is under the law with the
power of review, is not bound to adopt the recommendations of the Tariff Commission; and, that the Report is void,
as it is predicated on a flawed framework, inconsistent inferences and erroneous methodology.[12]
The Court of Appeals Twelfth Division, in a Decision[13] penned by Court of Appeals Associate Justice Elvi
John Asuncion,[14] partially granted Philcemcors petition. The appellate court ruled that it had jurisdiction over the
petition for certiorari since it alleged grave abuse of discretion. While it refused to annul the findings of the Tariff
Commission,[15] it also held that the DTI Secretary was not bound by the factual findings of the Tariff Commission
since such findings are merely recommendatory and they fall within the ambit of the Secretarys discretionary
review. It determined that the legislative intent is to grant the DTI Secretary the power to make a final decision on
the Tariff Commissions recommendation.[16]
On 23 June 2003, Southern Cross filed the present petition, arguing that the Court of Appeals has no
jurisdiction over Philcemcors petition, as the proper remedy is a petition for review with the CTA conformably with
the SMA, and; that the factual findings of the Tariff Commission on the existence or non-existence of conditions
warranting the imposition of general safeguard measures are binding upon the DTI Secretary.
Despite the fact that the Court of Appeals Decision had not yet become final, its binding force was cited by the
DTI Secretary when he issued a new Decision on 25 June 2003, wherein he ruled that that in light of the appellate
courts Decision, there was no longer any legal impediment to his deciding Philcemcors application for definitive
safeguard measures.[17] He made a determination that, contrary to the findings of the Tariff Commission, the local
cement industry had suffered serious injury as a result of the import surges. [18] Accordingly, he imposed a definitive
safeguard measure on the importation of gray Portland cement, in the form of a definitive safeguard duty in the
amount of P20.60/40 kg. bag for three years on imported gray Portland Cement.[19]
On 7 July 2003, Southern Cross filed with the Court a Very Urgent Application for a Temporary Restraining
Order and/or A Writ of Preliminary Injunction (TRO Application), seeking to enjoin the DTI Secretary from enforcing
his Decision of 25 June 2003 in view of the pending petition before this Court. Philcemcor filed an opposition,
claiming, among others, that it is not this Court but the CTA that has jurisdiction over the application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI Secretarys 25
June 2003 Decision which imposed the definite safeguard measure. Yet Southern Cross did not promptly inform
this Court about this filing. The first time the Court would learn about this Petition with the CTA was when Southern
Cross mentioned such fact in a pleading dated 11 August 2003 and filed the next day with this Court.[20]
Philcemcor argued before this Court that Southern Cross had deliberately and willfully resorted to forum-
shopping; that the CTA, being a special court of limited jurisdiction, could only review the ruling of the DTI Secretary
when a safeguard measure is imposed; and that the factual findings of the Tariff Commission are not binding on the
DTI Secretary.[21]
After giving due course to Southern Crosss Petition, the Court called the case for oral argument on 18
February 2004.[22] At the oral argument, attended by the counsel for Philcemcor and Southern Cross and the Office
of the Solicitor General, the Court simplified the issues in this wise: (i) whether the Decision of the DTI Secretary is
appealable to the CTA or the Court of Appeals; (ii) assuming that the Court of Appeals has jurisdiction, whether
its Decision is in accordance with law; and, whether a Temporary Restraining Order is warranted.[23]
After the parties had filed their respective memoranda, the Courts Second Division, to which the case had
been assigned, promulgated its Decision granting Southern Crosss Petition.[24]The Decision was unanimous,
without any separate or concurring opinion.
The Court ruled that the Court of Appeals had no jurisdiction over Philcemcors Petition, the proper remedy
under Section 29 of the SMA being a petition for review with the CTA; and that the Court of Appeals erred in ruling
that the DTI Secretary was not bound by the negative determination of the Tariff Commission and could therefore
impose the general safeguard measures, since Section 5 of the SMA precisely required that the Tariff Commission
make a positive final determination before the DTI Secretary could impose these measures. Anent the argument
that Southern Cross had committed forum-shopping, the Court concluded that there was no evident malicious intent
to subvert procedural rules so as to match the standard under Section 5, Rule 7 of the Rules of Court of willful and
deliberate forum shopping. Accordingly, the Decision of the Court of Appeals dated 5 June 2003 was declared null
and void.
The Court likewise found it necessary to nullify the Decision of the DTI Secretary dated 25 June 2003,
rendered after the filing of this present Petition. This Decision by the DTI Secretary had cited the obligatory force of
the null and void Court of Appeals Decision, notwithstanding the fact that the decision of the appellate court was not
yet final and executory. Considering that the decision of the Court of Appeals was a nullity to begin with, the
inescapable conclusion was that the new decision of the DTI Secretary, prescinding as it did from the imprimatur of
the decision of the Court of Appeals, was a nullity as well.
After the Decision was reported in the media, there was a flurry of newspaper articles citing alleged negative
reactions to the ruling by the counsel for Philcemcor, the DTI Secretary, and others. [25] Both respondents promptly
filed their respective motions for reconsideration.
On 21 September 2004, the Court En Banc resolved, upon motion of respondents, to accept the petition and
resolve the Motions for Reconsideration.[26] The case was then reheard[27] on oral argument on 1 March 2005.
During the hearing, the Court elicited from the parties their arguments on the two central issues as discussed in the
assailed Decision, pertaining to the jurisdictional aspect and to the substantive aspect of whether the DTI Secretary
may impose a general safeguard measure despite a negative determination by the Tariff Commission. The Court
chose not to hear argumentation on the peripheral issue of forum-shopping,[28] although this question shall be
tackled herein shortly. Another point of concern emerged during oral arguments on the exercise of quasi-judicial
powers by the Tariff Commission, and the parties were required by the Court to discuss in their respective
memoranda whether the Tariff Commission could validly exercise quasi-judicial powers in the exercise of its
mandate under the SMA.
The Court has likewise been notified that subsequent to the rendition of the Courts Decision, Philcemcor filed
a Petition for Extension of the Safeguard Measure with the DTI, which has been referred to the Tariff
Commission.[29] In an Urgent Motion dated 21 December 2004, Southern Cross prayed that Philcemcor, the DTI,
the Bureau of Customs, and the Tariff Commission be directed to cease and desist from taking any and all actions
pursuant to or under the null and void CA Decision and DTI Decision, including proceedings to extend the
safeguard measure.[30] In a Manifestation and Motion dated 23 June 2004, the Tariff Commission informed the
Court that since no prohibitory injunction or order of such nature had been issued by any court against the Tariff
Commission, the Commission proceeded to complete its investigation on the petition for extension, pursuant to
Section 9 of the SMA, but opted to defer transmittal of its report to the DTI Secretary pending guidance from this
Court on the propriety of such a step considering this pending Motion for Reconsideration. In a Resolutiondated 5
July 2005, the Court directed the parties to maintain the status quo effective of even date, and until further orders
from this Court. The denial of the pending motions for reconsideration will obviously render the pending petition for
extension academic.
I. Jurisdiction of the Court of Tax Appeals
Under Section 29 of the SMA
The first core issue resolved in the assailed Decision was whether the Court of Appeals had jurisdiction over
the special civil action for certiorari filed by Philcemcor assailing the 5 April 2002 Decision of the DTI Secretary. The
general jurisdiction of the Court of Appeals over special civil actions for certiorari is beyond doubt. The Constitution
itself assures that judicial review avails to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. At the
same time, the special civil action of certiorari is available only when there is no plain, speedy and adequate
remedy in the ordinary course of law.[31] Philcemcors recourse of special civil action before the Court of Appeals to
challenge the Decision of the DTI Secretary not to impose the general safeguard measures is not based on the
SMA, but on the general rule on certiorari. Thus, the Court proceeded to inquire whether indeed there was no other
plain, speedy and adequate remedy in the ordinary course of law that would warrant the allowance of Philcemcors
special civil action.
The answer hinged on the proper interpretation of Section 29 of the SMA, which reads:
Section 29. Judicial Review. Any interested party who is adversely affected by the ruling of the Secretary in
connection with the imposition of a safeguard measure may file with the CTA, a petition for review of such
ruling within thirty (30) days from receipt thereof. Provided, however, that the filing of such petition for review shall
not in any way stop, suspend or otherwise toll the imposition or collection of the appropriate tariff duties or the
adoption of other appropriate safeguard measures, as the case may be.
The petition for review shall comply with the same requirements and shall follow the same rules of procedure and
shall be subject to the same disposition as in appeals in connection with adverse rulings on tax matters to the Court
of Appeals.[32] (Emphasis supplied)
The matter is crucial for if the CTA properly had jurisdiction over the petition challenging the DTI Secretarys
ruling not to impose a safeguard measure, then the special civil action of certiorari resorted to instead by
Philcemcor would not avail, owing to the existence of a plain, speedy and adequate remedy in the ordinary course
of law.[33] The Court of Appeals, in asserting that it had jurisdiction, merely cited the general rule on certiorari
jurisdiction without bothering to refer to, or possibly even study, the import of Section 29. In contrast, this Court duly
considered the meaning and ramifications of Section 29, concluding that it provided for a plain, speedy and
adequate remedy that Philcemcor could have resorted to instead of filing the special civil action before the Court of
Appeals.
Philcemcor still holds on to its hypothesis that the petition for review allowed under Section 29 lies only if the
DTI Secretarys ruling imposes a safeguard measure. If, on the other hand, the DTI Secretarys ruling is not to
impose a safeguard measure, judicial review under Section 29 could not be resorted to since the provision refers to
rulings in connection with the imposition of the safeguard measure, as opposed to the non-imposition. Since
the Decision dated 5 April 2002 resolved against imposing a safeguard measure, Philcemcor claims that the proper
remedial recourse is a petition for certiorari with the Court of Appeals.
Interestingly, Republic Act No. 9282, promulgated on 30 March 2004, expressly vests unto the CTA jurisdiction
over [d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product, commodity or article . . .
involving . . . safeguard measures under Republic Act No. 8800, where either party may appeal the decision
to impose or not to impose said duties.[34] It is clear that any future attempts to advance the literalist position of
the respondents would consequently fail. However, since Republic Act No. 9282 has no retroactive effect, this
Court had to decide whether Section 29 vests jurisdiction on the CTA over rulings of the DTI Secretary not to
impose a safeguard measure. And the Court, in its assailed Decision, ruled that the CTA is endowed with such
jurisdiction.
Both respondents reiterate their fundamentalist reading that Section 29 authorizes the petition for review
before the CTA only when the DTI Secretary decides to impose a safeguard measure, but not when he decides not
to. In doing so, they fail to address what the Court earlier pointed out would be the absurd consequences if their
interpretation is followed to its logical end. But in affirming, as the Court now does, its previous holding that the CTA
has jurisdiction over petitions for review questioning the non-imposition of safeguard measures by the DTI
Secretary, the Court relies on the plain reading that Section 29 explicitly vests jurisdiction over such petitions on the
CTA.
Under Section 29, there are three requisites to enable the CTA to acquire jurisdiction over the petition for
review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition must be filed by an
interested party adversely affected by the ruling; and (iii) such ruling must be in connection with the imposition of a
safeguard measure. Obviously, there are differences between a ruling for the imposition of a safeguard measure,
and one issued in connection with the imposition of a safeguard measure. The first adverts to a singular type of
ruling, namely one that imposes a safeguard measure. The second does not contemplate only one kind of ruling,
but a myriad of rulings issued in connection with the imposition of a safeguard measure.
Respondents argue that the Court has given an expansive interpretation to Section 29, contrary to the
established rule requiring strict construction against the existence of jurisdiction in specialized courts. [35] But it is
the express provision of Section 29, and not this Court, that mandates CTA jurisdiction to be broad enough
to encompass more than just a ruling imposing the safeguard measure.
The key phrase remains in connection with. It has connotations that are obvious even to the layman. A ruling
issued in connection with the imposition of a safeguard measure would be one that bears some relation to the
imposition of a safeguard measure. Obviously, a ruling imposing a safeguard measure is covered by the phrase in
connection with, but such ruling is by no means exclusive. Rulings which modify, suspend or terminate a safeguard
measure are necessarily in connection with the imposition of a safeguard measure. So does a ruling allowing for a
provisional safeguard measure. So too, a ruling by the DTI Secretary refusing to refer the application for a
safeguard measure to the Tariff Commission. It is clear that there is an entire subset of rulings that the DTI
Secretary may issue in connection with the imposition of a safeguard measure, including those that are provisional,
interlocutory, or dispositive in character.[36]By the same token, a ruling not to impose a safeguard measure is also
issued in connection with the imposition of a safeguard measure.
In arriving at the proper interpretation of in connection with, the Court referred to the U.S. Supreme Court
cases of Shaw v. Delta Air Lines, Inc.[37] and New York State Blue Cross Plans v. Travelers Ins.[38] Both cases
considered the interpretation of the phrase relates to as used in a federal statute, the Employee Retirement
Security Act of 1974. Respondents criticize the citations on the premise that the cases are not binding in our
jurisdiction and do not involve safeguard measures. The criticisms are off-tangent considering that our ruling did not
call for the application of the Employee Retirement Security Act of 1974 in the Philippine milieu. The American
cases are not relied upon as precedents, but as guides of interpretation. Certainly, if there are applicable local
precedents pertaining to the interpretation of the phrase in connection with, then these certainly would have some
binding force. But none avail, and neither do the respondents demonstrate a countervailing holding in Philippine
jurisprudence.
Yet we should consider the claim that an expansive interpretation was favored in Shaw because the law in
question was an employees benefit law that had to be given an interpretation favorable to its intended
beneficiaries.[39] In the next breath, Philcemcor notes that the U.S. Supreme Court itself was alarmed by the
expansive interpretation in Shaw and thus in Blue Cross, the Shaw ruling was reversed and a more restrictive
interpretation was applied based on congressional intent.[40]
Respondents would like to make it appear that the Court acted rashly in applying a discarded precedent
in Shaw, a non-binding foreign precedent nonetheless. But the Court did make the following observation in
its Decision pertaining to Blue Cross:
Now, let us determine the maximum scope and reach of the phrase in connection with as used in Section 29 of the
SMA. A literalist reading or linguistic survey may not satisfy. Even the U.S. Supreme Court in New York State Blue
Cross Plans v. Travelers Ins.[41] conceded that the phrases relate to or in connection with may be extended to the
farthest stretch of indeterminacy for, universally, relations or connections are infinite and stop nowhere. [42] Thus, in
the case the U.S. High Court, examining the same phrase of the same provision of law involved in Shaw,
resorted to looking at the statute and its objectives as the alternative to an uncritical literalism. A similar
inquiry into the other provisions of the SMA is in order to determine the scope of review accorded therein
to the CTA.[43]
In the next four paragraphs of the Decision, encompassing four pages, the Court proceeded to inquire into the
SMA and its objectives as a means to determine the scope of rulings to be deemed as in connection with the
imposition of a safeguard measure. Certainly, this Court did not resort to the broadest interpretation possible of the
phrase in connection with, but instead sought to bring it into the context of the scope and objectives of the SMA.
The ultimate conclusion of the Court was that the phrase includes all rulings of the DTI Secretary which arise from
the time an application or motu proprio initiation for the imposition of a safeguard measure is taken. [44] This
conclusion was derived from the observation that the imposition of a general safeguard measure is a process,
initiated motu proprio or through application, which undergoes several stages upon which the DTI Secretary is
obliged or may be called upon to issue a ruling.
It should be emphasized again that by utilizing the phrase in connection with, it is the SMA that expressly vests
jurisdiction on the CTA over petitions questioning the non-imposition by the DTI Secretary of safeguard measures.
The Court is simply asserting, as it should, the clear intent of the legislature in enacting the SMA. Without in
connection with or a synonymous phrase, the Court would be compelled to favor the respondents position that only
rulings imposing safeguard measures may be elevated on appeal to the CTA. But considering that the statute does
make use of the phrase, there is little sense in delving into alternate scenarios.
Respondents fail to convincingly address the absurd consequences pointed out by the Decision had their
proposed interpretation been adopted. Indeed, suffocated beneath the respondents legalistic tinsel is the elemental
questionwhat sense is there in vesting jurisdiction on the CTA over a decision to impose a safeguard measure, but
not on one choosing not to impose. Of course, it is not for the Court to inquire into the wisdom of legislative acts,
hence the rule that jurisdiction must be expressly vested and not presumed. Yet ultimately, respondents muddle the
issue by making it appear that the Decision has uniquely expanded the jurisdictional rules. For the respondents, the
proper statutory interpretation of the crucial phrase in connection with is to pretend that the phrase did not exist at
all in the statute. The Court, in taking the effort to examine the meaning and extent of the phrase, is merely giving
breath to the legislative will.
The Court likewise stated that the respondents position calls for split jurisdiction, which is judicially abhorred.
In rebuttal, the public respondents cite Sections 2313 and 2402 of the Tariff and Customs Code (TCC), which
allegedly provide for a splitting of jurisdiction of the CTA. According to public respondents, under Section 2313 of
the TCC, a decision of the Commissioner of Customs affirming a decision of the Collector of Customs adverse to
the government is elevated for review to the Secretary of Finance. However, under Section 2402 of the TCC, a
ruling of the Commissioner of the Bureau of Customs against a taxpayer must be appealed to the Court of Tax
Appeals, and not to the Secretary of Finance.
Strictly speaking, the review by the Secretary of Finance of the decision of the Commissioner of Customs is
not judicial review, since the Secretary of Finance holds an executive and not a judicial office. The contrast is
apparent with the situation in this case, wherein the interpretation favored by the respondents calls for the exercise
of judicial review by two different courts over essentially the same questionwhether the DTI Secretary should
impose general safeguard measures. Moreover, as petitioner points out, the executive department cannot appeal
against itself. The Collector of Customs, the Commissioner of Customs and the Secretary of Finance are all part of
the executive branch. If the Collector of Customs rules against the government, the executive cannot very well
bring suit in courts against itself. On the other hand, if a private person is aggrieved by the decision of the Collector
of Customs, he can have proper recourse before the courts, which now would be called upon to exercise judicial
review over the action of the executive branch.
More fundamentally, the situation involving split review of the decision of the Collector of Customs under the
TCC is not apropos to the case at bar. The TCC in that instance is quite explicit on the divergent reviewing body or
official depending on which party prevailed at the Collector of Customs level. On the other hand, there is no such
explicit expression of bifurcated appeals in Section 29 of the SMA.
Public respondents likewise cite Fabian v. Ombudsman[45] as another instance wherein the Court purportedly
allowed split jurisdiction. It is argued that the Court, in ruling that it was the Court of Appeals which possessed
appellate authority to review decisions of the Ombudsman in administrative cases while the Court retaining
appellate jurisdiction of decisions of the Ombudsman in non-administrative cases, effectively sanctioned split
jurisdiction between the Court and the Court of Appeals.[46]
 Nonetheless, this argument is successfully undercut by Southern Cross, which points out the essential
differences in the power exercised by the Ombudsman in administrative cases and non-administrative cases
relating to criminal complaints. In the former, the Ombudsman may impose an administrative penalty, while in
acting upon a criminal complaint what the Ombudsman undertakes is a preliminary investigation. Clearly, the
capacity in which the Ombudsman takes on in deciding an administrative complaint is wholly different from that in
conducting a preliminary investigation. In contrast, in ruling upon a safeguard measure, the DTI Secretary acts in
one and the same role. The variance between an order granting or denying an application for a safeguard measure
is polar though emanating from the same equator, and does not arise from the distinct character of the putative
actions involved.
Philcemcor imputes intelligent design behind the alleged intent of Congress to limit CTA review only to
impositions of the general safeguard measures. It claims that there is a necessary tax implication in case of an
imposition of a tariff where the CTAs expertise is necessary, but there is no such tax implication, hence no need for
the assumption of jurisdiction by a specialized agency, when the ruling rejects the imposition of a safeguard
measure. But of course, whether the ruling under review calls for the imposition or non-imposition of the safeguard
measure, the common question for resolution still is whether or not the tariff should be imposed an issue definitely
fraught with a tax dimension. The determination of the question will call upon the same kind of expertise that a
specialized body as the CTA presumably possesses.
In response to the Courts observation that the setup proposed by respondents was novel, unusual,
cumbersome and unwise, public respondents invoke the maxim that courts should not be concerned with the
wisdom and efficacy of legislation.[47] But this prescinds from the bogus claim that the CTA may not exercise judicial
review over a decision not to impose a safeguard measure, a prohibition that finds no statutory support. It is
likewise settled in statutory construction that an interpretation that would cause inconvenience and absurdity is not
favored. Respondents do not address the particular illogic that the Court pointed out would ensue if their position on
judicial review were adopted. According to the respondents, while a ruling by the DTI Secretary imposing a
safeguard measure may be elevated on review to the CTA and assailed on the ground of errors in fact and in law, a
ruling denying the imposition of safeguard measures may be assailed only on the ground that the DTI Secretary
committed grave abuse of discretion. As stressed in the Decision, [c]ertiorari is a remedy narrow in its scope and
inflexible in its character. It is not a general utility tool in the legal workshop.[48]
It is incorrect to say that the Decision bars any effective remedy should the Tariff Commission act or conclude
erroneously in making its determination whether the factual conditions exist which necessitate the imposition of the
general safeguard measure. If the Tariff Commission makes a negative final determination, the DTI Secretary,
bound as he is by this negative determination, has to render a decision denying the application for safeguard
measures citing the Tariff Commissions findings as basis. Necessarily then, such negative determination of the
Tariff Commission being an integral part of the DTI Secretarys ruling would be open for review before the CTA,
which again is especially qualified by reason of its expertise to examine the findings of the Tariff Commission.
Moreover, considering that the Tariff Commission is an instrumentality of the government, its actions (as opposed
to those undertaken by the DTI Secretary under the SMA) are not beyond the pale of certiorari jurisdiction.
Unfortunately for Philcemcor, it hinged its cause on the claim that the DTI Secretarys actions may be annulled on
certiorari, notwithstanding the explicit grant of judicial review over that cabinet members actions under the SMA to
the CTA.
Finally on this point, Philcemcor argues that assuming this Courts interpretation of Section 29 is correct, such
ruling should not be given retroactive effect, otherwise, a gross violation of the right to due process would be had.
This erroneously presumes that it was this Court, and not Congress, which vested jurisdiction on the CTA over
rulings of non-imposition rendered by the DTI Secretary. We have repeatedly stressed that Section 29 expressly
confers CTA jurisdiction over rulings in connection with the imposition of the safeguard measure, and the
reassertion of this point in the Decision was a matter of emphasis, not of contrivance. The due process protection
does not shield those who remain purposely blind to the express rules that ensure the sporting play of procedural
law.
Besides, respondents claim would also apply every time this Court is compelled to settle a novel question of
law, or to reverse precedent. In such cases, there would always be litigants whose causes of action might be
vitiated by the application of newly formulated judicial doctrines. Adopting their claim would unwisely force this
Court to treat its dispositions in unprecedented, sometimes landmark decisions not as resolutions to the live cases
or controversies, but as legal doctrine applicable only to future litigations.
II. Positive Final Determination
By the Tariff Commission an
 Indispensable Requisite to the
Imposition of General Safeguard Measures
The second core ruling in the Decision was that contrary to the holding of the Court of Appeals, the DTI
Secretary was barred from imposing a general safeguard measure absent a positive final determination rendered
by the Tariff Commission. The fundamental premise rooted in this ruling is based on the acknowledgment that the
required positive final determination of the Tariff Commission exists as a properly enacted constitutional limitation
imposed on the delegation of the legislative power to impose tariffs and imposts to the President under Section
28(2), Article VI of the Constitution.
Congressional Limitations Pursuant
To Constitutional Authority on the
Delegated Power to Impose
Safeguard Measures
The safeguard measures imposable under the SMA generally involve duties on imported products, tariff rate
quotas, or quantitative restrictions on the importation of a product into the country. Concerning as they do the
foreign importation of products into the Philippines, these safeguard measures fall within the ambit of Section 28(2),
Article VI of the Constitution, which states:
The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues,
and other duties or imposts within the framework of the national development program of the Government. [49]
The Court acknowledges the basic postulates ingrained in the provision, and, hence, governing in this case.
They are:
(1) It is Congress which authorizes the President to impose tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts. Thus, the authority cannot come from the Finance
Department, the National Economic Development Authority, or the World Trade Organization, no matter how
insistent or persistent these bodies may be.
(2) The authorization granted to the President must be embodied in a law. Hence, the justification cannot
be supplied simply by inherent executive powers. It cannot arise from administrative or executive orders
promulgated by the executive branch or from the wisdom or whim of the President.
(3) The authorization to the President can be exercised only within the specified limits set in the law
and is further subject to limitations and restrictions which Congress may impose. Consequently, if Congress
specifies that the tariff rates should not exceed a given amount, the President cannot impose a tariff rate that
exceeds such amount. If Congress stipulates that no duties may be imposed on the importation of corn, the
President cannot impose duties on corn, no matter how actively the local corn producers lobby the President. Even
the most picayune of limits or restrictions imposed by Congress must be observed by the President.
There is one fundamental principle that animates these constitutional postulates. These impositions under
Section 28(2), Article VI fall within the realm of the power of taxation, a power which is within the sole
province of the legislature under the Constitution.
Without Section 28(2), Article VI, the executive branch has no authority to impose tariffs and other
similar tax levies involving the importation of foreign goods. Assuming that Section 28(2) Article VI did not
exist, the enactment of the SMA by Congress would be voided on the ground that it would constitute an undue
delegation of the legislative power to tax. The constitutional provision shields such delegation from constitutional
infirmity, and should be recognized as an exceptional grant of legislative power to the President, rather than the
affirmation of an inherent executive power.
This being the case, the qualifiers mandated by the Constitution on this presidential authority attain primordial
consideration. First, there must be a law, such as the SMA. Second, there must be specified limits, a detail which
would be filled in by the law. And further, Congress is further empowered to impose limitations and restrictions on
this presidential authority. On this last power, the provision does not provide for specified conditions, such as that
the limitations and restrictions must conform to prior statutes, internationally accepted practices, accepted
jurisprudence, or the considered opinion of members of the executive branch.
The Court recognizes that the authority delegated to the President under Section 28(2), Article VI may be
exercised, in accordance with legislative sanction, by the alter egos of the President, such as department
secretaries. Indeed, for purposes of the Presidents exercise of power to impose tariffs under Article VI, Section
28(2), it is generally the Secretary of Finance who acts as alter ego of the President. The SMA provides an
exceptional instance wherein it is the DTI or Agriculture Secretary who is tasked by Congress, in their capacities
as alter egos of the President, to impose such measures. Certainly, the DTI Secretary has no inherent power, even
as alter ego of the President, to levy tariffs and imports.
Concurrently, the tasking of the Tariff Commission under the SMA should be likewise construed within the
same context as part and parcel of the legislative delegation of its inherent power to impose tariffs and imposts to
the executive branch, subject to limitations and restrictions. In that regard, both the Tariff Commission and the DTI
Secretary may be regarded as agents of Congress within their limited respective spheres, as ordained in the SMA,
in the implementation of the said law which significantly draws its strength from the plenary legislative power of
taxation. Indeed, even the President may be considered as an agent of Congress for the purpose of
imposing safeguard measures. It is Congress, not the President, which possesses inherent powers to
impose tariffs and imposts. Without legislative authorization through statute, the President has no power,
authority or right to impose such safeguard measures because taxation is inherently legislative, not
executive.
When Congress tasks the President or his/her alter egos to impose safeguard measures under the
delineated conditions, the President or the alter egos may be properly deemed as agents of Congress to
perform an act that inherently belongs as a matter of right to the legislature. It is basic agency law that the
agent may not act beyond the specifically delegated powers or disregard the restrictions imposed by the principal.
In short, Congress may establish the procedural framework under which such safeguard measures may be
imposed, and assign the various offices in the government bureaucracy respective tasks pursuant to the imposition
of such measures, the task assignment including the factual determination of whether the necessary conditions
exists to warrant such impositions. Under the SMA, Congress assigned the DTI Secretary and the Tariff
Commission their respective functions[50] in the legislatures scheme of things.
There is only one viable ground for challenging the legality of the limitations and restrictions imposed by
Congress under Section 28(2) Article VI, and that is such limitations and restrictions are themselves violative of the
Constitution. Thus, no matter how distasteful or noxious these limitations and restrictions may seem, the Court has
no choice but to uphold their validity unless their constitutional infirmity can be demonstrated.
What are these limitations and restrictions that are material to the present case? The entire SMA provides for
a limited framework under which the President, through the DTI and Agriculture Secretaries, may impose safeguard
measures in the form of tariffs and similar imposts. The limitation most relevant to this case is contained in Section
5 of the SMA, captioned Conditions for the Application of General Safeguard Measures, and stating:
The Secretary shall apply a general safeguard measure upon a positive final determination of the [Tariff]
Commission that a product is being imported into the country in increased quantities, whether absolute or relative
to the domestic production, as to be a substantial cause of serious injury or threat thereof to the domestic industry;
however, in the case of non-agricultural products, the Secretary shall first establish that the application of such
safeguard measures will be in the public interest.[51]
Positive Final Determination
By Tariff Commission Plainly
Required by Section 5 of SMA
There is no question that Section 5 of the SMA operates as a limitation validly imposed by Congress on the
presidential[52] authority under the SMA to impose tariffs and imposts. That the positive final determination operates
as an indispensable requisite to the imposition of the safeguard measure, and that it is the Tariff Commission which
makes such determination, are legal propositions plainly expressed in Section 5 for the easy comprehension for
everyone but respondents.
Philcemcor attributes this Courts conclusion on the indispensability of the positive final determination to flawed
syllogism in that we read the proposition if A then B as if it stated if A, and only A, then B. [53] Translated in practical
terms, our conclusion, according to Philcemcor, would have only been justified had Section 5 read shall apply a
general safeguard measure upon, and only upon, a positive final determination of the Tariff Commission.
Statutes are not designed for the easy comprehension of the five-year old child. Certainly, general propositions
laid down in statutes need not be expressly qualified by clauses denoting exclusivity in order that they gain efficacy.
Indeed, applying this argument, the President would, under the Constitution, be authorized to declare martial law
despite the absence of the invasion, rebellion or public safety requirement just because the first paragraph of
Section 18, Article VII fails to state the magic word only.[54]
 But let us for the nonce pursue Philcemcors logic further. It claims that since Section 5 does not allegedly limit
the circumstances upon which the DTI Secretary may impose general safeguard measures, it is a worthy pursuit to
determine whether the entire context of the SMA, as discerned by all the other familiar indicators of legislative intent
supplied by norms of statutory interpretation, would justify safeguard measures absent a positive final determination
by the Tariff Commission.
The first line of attack employed is on Section 5 itself, it allegedly not being as clear as it sounds. It is
advanced that Section 5 does not relate to the legal ability of either the Tariff Commission or the DTI Secretary to
bind or foreclose review and reversal by one or the other. Such relationship should instead be governed by
domestic administrative law and remedial law. Philcemcor thus would like to cast the proposition in this manner:
Does it run contrary to our legal order to assert, as the Court did in its Decision, that a body of relative junior
competence as the Tariff Commission can bind an administrative superior and cabinet officer, the DTI Secretary? It
is easy to see why Philcemcor would like to divorce this DTI Secretary-Tariff Commission interaction from the
confines of the SMA. Shorn of context, the notion would seem radical and unjustifiable that the lowly Tariff
Commission can bind the hands and feet of the DTI Secretary.
It can be surmised at once that respondents preferred interpretation is based not on the express language of
the SMA, but from implications derived in a roundabout manner. Certainly, no provision in the SMA expressly
authorizes the DTI Secretary to impose a general safeguard measure despite the absence of a positive final
recommendation of the Tariff Commission. On the other hand, Section 5 expressly states that the DTI Secretary
shall apply a general safeguard measure upon a positive final determination of the [Tariff] Commission. The causal
connection in Section 5 between the imposition by the DTI Secretary of the general safeguard measure and the
positive final determination of the Tariff Commission is patent, and even respondents do not dispute such
connection.
As stated earlier, the Court in its Decision found Section 5 to be clear, plain and free from ambiguity so as to
render unnecessary resort to the congressional records to ascertain legislative intent. Yet respondents, on the
dubitable premise that Section 5 is not as express as it seems, again latch on to the record of legislative
deliberations in asserting that there was no legislative intent to bar the DTI Secretary from imposing the general
safeguard measure anyway despite the absence of a positive final determination by the Tariff Commission.
Let us take the bait for a moment, and examine respondents commonly cited portion of the legislative record.
One would presume, given the intense advocacy for the efficacy of these citations, that they contain a smoking
gun express declarations from the legislators that the DTI Secretary may impose a general safeguard measure
even if the Tariff Commission refuses to render a positive final determination. Such smoking gun, if it exists, would
characterize our Decision as disingenuous for ignoring such contrary expression of intent from the legislators who
enacted the SMA. But as with many things, the anticipation is more dramatic than the truth.
The excerpts cited by respondents are derived from the interpellation of the late Congressman Marcial
Punzalan Jr., by then (and still is) Congressman Simeon Datumanong. [55]Nowhere in these records is the view
expressed that the DTI Secretary may impose the general safeguard measures if the Tariff Commission issues a
negative final determination or otherwise is unable to make a positive final determination. Instead, respondents
hitch on the observations of Congressman Punzalan Jr., that the results of the [Tariff] Commissions findings . . . is
subsequently submitted to [the DTI Secretary] for the [DTI Secretary] to impose or not to impose; and that the [DTI
Secretary] here iswho would make the final decision on the recommendation that is made by a more technical body
[such as the Tariff Commission].[56]
There is nothing in the remarks of Congressman Punzalan which contradict our Decision. His observations fall
in accord with the respective roles of the Tariff Commission and the DTI Secretary under the SMA. Under the SMA,
it is the Tariff Commission that conducts an investigation as to whether the conditions exist to warrant the
imposition of the safeguard measures. These conditions are enumerated in Section 5, namely; that a product is
being imported into the country in increased quantities, whether absolute or relative to the domestic production, as
to be a substantial cause of serious injury or threat thereof to the domestic industry. After the investigation of the
Tariff Commission, it submits a report to the DTI Secretary which states, among others, whether the above-stated
conditions for the imposition of the general safeguard measures exist. Upon a positive final determination that these
conditions are present, the Tariff Commission then is mandated to recommend what appropriate safeguard
measures should be undertaken by the DTI Secretary. Section 13 of the SMA gives five (5) specific options on the
type of safeguard measures the Tariff Commission recommends to the DTI Secretary.
At the same time, nothing in the SMA obliges the DTI Secretary to adopt the recommendations made by the
Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the application of such safeguard
measures is in the public interest, notwithstanding the Tariff Commissions recommendation on the appropriate
safeguard measure upon its positive final determination. Thus, even if the Tariff Commission makes a positive final
determination, the DTI Secretary may opt not to impose a general safeguard measure, or choose a different type of
safeguard measure other than that recommended by the Tariff Commission.
Congressman Punzalan was cited as saying that the DTI Secretary makes the decision to impose or not to
impose, which is correct since the DTI Secretary may choose not to impose a safeguard measure in spite of a
positive final determination by the Tariff Commission. Congressman Punzalan also correctly stated that it is the DTI
Secretary who makes the final decision on the recommendation that is made [by the Tariff Commission], since the
DTI Secretary may choose to impose a general safeguard measure different from that recommended by the Tariff
Commission or not to impose a safeguard measure at all. Nowhere in these cited deliberations was Congressman
Punzalan, or any other member of Congress for that matter, quoted as saying that the DTI Secretary may ignore a
negative determination by the Tariff Commission as to the existence of the conditions warranting the imposition of
general safeguard measures, and thereafter proceed to impose these measures nonetheless. It is too late in the
day to ascertain from the late Congressman Punzalan himself whether he had made these remarks in order to
assure the other legislators that the DTI Secretary may impose the general safeguard measures notwithstanding a
negative determination by the Tariff Commission. But certainly, the language of Section 5 is more resolutory to that
question than the recorded remarks of Congressman Punzalan.
Respondents employed considerable effort to becloud Section 5 with undeserved ambiguity in order that a
proper resort to the legislative deliberations may be had. Yet assuming that Section 5 deserves to be clarified
through an inquiry into the legislative record, the excerpts cited by the respondents are far more ambiguous than
the language of the assailed provision regarding the key question of whether the DTI Secretary may impose
safeguard measures in the face of a negative determination by the Tariff Commission. Moreover, even Southern
Cross counters with its own excerpts of the legislative record in support of their own view. [57]
It will not be difficult, especially as to heavily-debated legislation, for two sides with contrapuntal interpretations
of a statute to highlight their respective citations from the legislative debate in support of their particular views.[58] A
futile exercise of second-guessing is happily avoided if the meaning of the statute is clear on its face. It is evident
from the text of Section 5 that there must be a positive final determination by the Tariff Commission that a
product is being imported into the country in increased quantities (whether absolute or relative to domestic
production), as to be a substantial cause of serious injury or threat to the domestic industry. Any disputation
to the contrary is, at best, the product of wishful thinking.
For the same reason that Section 5 is explicit as regards the essentiality of a positive final determination by the
Tariff Commission, there is no need to refer to the Implementing Rules of the SMA to ascertain a contrary intent. If
there is indeed a provision in the Implementing Rules that allows the DTI Secretary to impose a general safeguard
measure even without the positive final determination by the Tariff Commission, said rule is void as it cannot
supplant the express language of the legislature. Respondents essentially rehash their previous arguments on this
point, and there is no reason to consider them anew. The Decision made it clear that nothing in Rule 13.2 of the
Implementing Rules, even though captioned Final Determination by the Secretary, authorizes the DTI Secretary to
impose a general safeguard measure in the absence of a positive final determination by the Tariff
Commission.[59] Similarly, the Rules and Regulations to Govern the Conduct of Investigation by the Tariff
Commission Pursuant to Republic Act No. 8800 now cited by the respondent does not contain any provision that
the DTI Secretary may impose the general safeguard measures in the absence of a positive final determination by
the Tariff Commission.
Section 13 of the SMA further bolsters the interpretation as argued by Southern Cross and upheld by
the Decision. The first paragraph thereof states that [u]pon its positive determination, the [Tariff] Commission shall
recommend to the Secretary an appropriate definitive measure, clearly referring to the Tariff Commission as the
entity that makes the positive determination. On the other hand, the penultimate paragraph of the same provision
states that [i]n the event of a negative final determination, the DTI Secretary is to immediately issue through the
Secretary of Finance, a written instruction to the Commissioner of Customs authorizing the return of the cash bonds
previously collected as a provisional safeguard measure. Since the first paragraph of the same provision states that
it is the Tariff Commission which makes the positive determination, it necessarily follows that it, and not the DTI
Secretary, makes the negative final determination as referred to in the penultimate paragraph of Section 13. [60]
The Separate Opinion considers as highly persuasive of former Tariff Commission Chairman Abon, who stated
that the Commissions findings are merely recommendatory. [61] Again, the considered opinion of Chairman Abon is
of no operative effect if the statute plainly states otherwise, and Section 5 bluntly does require a positive final
determination by the Tariff Commission before the DTI Secretary may impose a general safeguard
measure.[62]Certainly, the Court cannot give controlling effect to the statements of any public officer in serious
denial of his duties if the law otherwise imposes the duty on the public office or officer.
 Nonetheless, if we are to render persuasive effect on the considered opinion of the members of the Executive
Branch, it bears noting that the Secretary of the Department of Justice rendered an Opinion wherein he concluded
that the DTI Secretary could not impose a general safeguard measure if the Tariff Commission made a negative
final determination.[63] Unlike Chairman Abons impromptu remarks made during a hearing, the DOJ Opinion was
rendered only after a thorough study of the question after referral to it by the DTI. The DOJ Secretary is the alter
ego of the President with a stated mandate as the head of the principal law agency of the government.[64] As the
DOJ Secretary has no denominated role in the SMA, he was able to render his Opinion from the vantage of
judicious distance. Should not his Opinion, studied and direct to the point as it is, carry greater weight than the
spontaneous remarks of the Tariff Commissions Chairman which do not even expressly disavow the binding power
of the Commissions positive final determination?
III. DTI Secretary has No Power of Review
Over Final Determination of the Tariff Commission
We should reemphasize that it is only because of the SMA, a legislative enactment, that the executive branch
has the power to impose safeguard measures. At the same time, by constitutional fiat, the exercise of such power
is subjected to the limitations and restrictions similarly enforced by the SMA. In examining the relationship of the
DTI and the Tariff Commission as established in the SMA, it is essential to acknowledge and consider these
predicates.
It is necessary to clarify the paradigm established by the SMA and affirmed by the Constitution under which
the Tariff Commission and the DTI operate, especially in light of the suggestions that the Courts rulings on the
functions of quasi-judicial power find application in this case. Perhaps the reflexive application of the quasi-judicial
doctrine in this case, rooted as it is in jurisprudence, might allow for some convenience in ruling, yet doing so
ultimately betrays ignorance of the fundamental power of Congress to reorganize the administrative structure of
governance in ways it sees fit.
The Separate Opinion operates from wholly different premises which are incomplete. Its main stance, similar
to that of respondents, is that the DTI Secretary, acting as alter ego of the President, may modify and alter the
findings of the Tariff Commission, including the latters negative final determination by substituting it with his own
negative final determination to pave the way for his imposition of a safeguard measure. [65] Fatally, this conclusion is
arrived at without considering the fundamental constitutional precept under Section 28(2), Article VI, on the ability of
Congress to impose restrictions and limitations in its delegation to the President to impose tariffs and imposts, as
well as the express condition of Section 5 of the SMA requiring a positive final determination of the Tariff
Commission.
Absent Section 5 of the SMA, the President has no inherent, constitutional, or statutory power to
impose a general safeguard measure. Tellingly, the Separate Opinion does not directly confront the inevitable
question as to how the DTI Secretary may get away with imposing a general safeguard measure absent a positive
final determination from the Tariff Commission without violating Section 5 of the SMA, which along with Section 13
of the same law, stands as the only direct legal authority for the DTI Secretary to impose such measures. This is a
constitutionally guaranteed limitation of the highest order, considering that the presidential authority exercised
under the SMA is inherently legislative.
Nonetheless, the Separate Opinion brings to fore the issue of whether the DTI Secretary, acting either as alter
ego of the President or in his capacity as head of an executive department, may review, modify or otherwise alter
the final determination of the Tariff Commission under the SMA. The succeeding discussion shall focus on that
question.
Preliminarily, we should note that none of the parties question the designation of the DTI or Agriculture
secretaries under the SMA as the imposing authorities of the safeguard measures, even though Section 28(2)
Article VI states that it is the President to whom the power to impose tariffs and imposts may be delegated by
Congress. The validity of such designation under the SMA should not be in doubt. We recognize that the
authorization made by Congress in the SMA to the DTI and Agriculture Secretaries was made in contemplation of
their capacities as alter egos of the President.
Indeed, in Marc Donnelly & Associates v. Agregado[66] the Court upheld the validity of a Cabinet resolution
fixing the schedule of royalty rates on metal exports and providing for their collection even though Congress, under
Commonwealth Act No. 728, had specifically empowered the President and not any other official of the executive
branch, to regulate and curtail the export of metals. In so ruling, the Court held that the members of the Cabinet
were acting as alter egos of the President.[67] In this case, Congress itself authorized the DTI Secretary as alter ego
of the President to impose the safeguard measures. If the Court was previously willing to uphold the alter egos tariff
authority despite the absence of explicit legislative grant of such authority on the alter ego, all the more reason now
when Congress itself expressly authorized the alter ego to exercise these powers to impose safeguard measures.
Notwithstanding, Congress in enacting the SMA and prescribing the roles to be played therein by the Tariff
Commission and the DTI Secretary did not envision that the President, or his/her alter ego, could exercise
supervisory powers over the Tariff Commission. If truly Congress intended to allow the traditional alter ego principle
to come to fore in the peculiar setup established by the SMA, it would have assigned the role now played by the
DTI Secretary under the law instead to the NEDA. The Tariff Commission is an attached agency of the National
Economic Development Authority,[68] which in turn is the independent planning agency of the government.[69]
The Tariff Commission does not fall under the administrative supervision of the DTI. [70] On the other hand, the
administrative relationship between the NEDA and the Tariff Commission is established not only by the
Administrative Code, but similarly affirmed by the Tariff and Customs Code.
Justice Florentino Feliciano, in his ponencia in Garcia v. Executive Secretary[71], acknowledged the interplay
between the NEDA and the Tariff Commission under the Tariff and Customs Code when he cited the relevant
provisions of that law evidencing such setup. Indeed, under Section 104 of the Tariff and Customs Code, the rates
of duty fixed therein are subject to periodic investigation by the Tariff Commission and may be revised by the
President upon recommendation of the NEDA.[72] Moreover, under Section 401 of the same law, it is upon periodic
investigations by the Tariff Commission and recommendation of the NEDA that the President may cause a gradual
reduction of protection levels granted under the law.[73]
At the same time, under the Tariff and Customs Code, no similar role or influence is allocated to the DTI in the
matter of imposing tariff duties. In fact, the long-standing tradition has been for the Tariff Commission and the DTI
to proceed independently in the exercise of their respective functions. Only very recently have our statutes directed
any significant interplay between the Tariff Commission and the DTI, with the enactment in 1999 of Republic Act
No. 8751 on the imposition of countervailing duties and Republic Act No. 8752 on the imposition of anti-dumping
duties, and of course the promulgation a year later of the SMA. In all these three laws, the Tariff Commission is
tasked, upon referral of the matter by the DTI, to determine whether the factual conditions exist to warrant the
imposition by the DTI of a countervailing duty, an anti-dumping duty, or a general safeguard measure, respectively.
In all three laws, the determination by the Tariff Commission that these required factual conditions exist is
necessary before the DTI Secretary may impose the corresponding duty or safeguard measure. And in all three
laws, there is no express provision authorizing the DTI Secretary to reverse the factual determination of the Tariff
Commission.[74]
In fact, the SMA indubitably establishes that the Tariff Commission is no mere flunky of the DTI Secretary
when it mandates that the positive final recommendation of the former be indispensable to the latters imposition of
a general safeguard measure. What the law indicates instead is a relationship of interdependence between two
bodies independent of each other under the Administrative Code and the SMA alike. Indeed, even the ability of the
DTI Secretary to disregard the Tariff Commissions recommendations as to the particular safeguard measures to be
imposed evinces the independence from each other of these two bodies. This is properly so for two reasons the
DTI and the Tariff Commission are independent of each other under the Administrative Code; and impropriety is
avoided in cases wherein the DTI itself is the one seeking the imposition of the general safeguard measures,
pursuant to Section 6 of the SMA.
Thus, in ascertaining the appropriate legal milieu governing the relationship between the DTI and the Tariff
Commission, it is imperative to apply foremost, if not exclusively, the provisions of the SMA. The argument that the
usual rules on administrative control and supervision apply between the Tariff Commission and the DTI as regards
safeguard measures is severely undercut by the plain fact that there is no long-standing tradition of administrative
interplay between these two entities.
Within the administrative apparatus, the Tariff Commission appears to be a lower rank relative to the DTI. But
does this necessarily mean that the DTI has the intrinsic right, absent statutory authority, to reverse the findings of
the Tariff Commission? To insist that it does, one would have to concede for instance that, applying the same
doctrinal guide, the Secretary of the Department of Science and Technology (DOST) has the right to reverse the
rulings of the Civil Aeronautics Board (CAB) or the issuances of the Philippine Coconut Authority (PCA). As with the
Tariff Commission-DTI, there is no statutory authority granting the DOST Secretary the right to overrule the CAB or
the PCA, such right presumably arising only from the position of subordinacy of these bodies to the DOST. To insist
on such a right would be to invite department secretaries to interfere in the exercise of functions by administrative
agencies, even in areas wherein such secretaries are bereft of specialized competencies.
The Separate Opinion notes that notwithstanding above, the Secretary of Department of Transportation and
Communication may review the findings of the CAB, the Agriculture Secretary may review those of the PCA, and
that the Secretary of the Department of Environment and Natural Resources may pass upon decisions of the Mines
and Geosciences Board.[75] These three officers may be alter egos of the President, yet their authority to review is
limited to those agencies or bureaus which are, pursuant to statutes such as the Administrative Code of 1987,
under the administrative control and supervision of their respective departments. Thus, under the express provision
of the Administrative Code expressly provides that the CAB is an attached agency of the DOTC [76], and that the
PCA is an attached agency of the Department of Agriculture. [77] The same law establishes the Mines and Geo-
Sciences Bureau as one of the Sectoral Staff Bureaus[78] that forms part of the organizational structure of the
DENR.[79]
As repeatedly stated, the Tariff Commission does not fall under the administrative control of the DTI, but under
the NEDA, pursuant to the Administrative Code. The reliance made by the Separate Opinion to those three
examples are thus misplaced.
Nonetheless, the Separate Opinion asserts that the SMA created a functional relationship between the Tariff
Commission and the DTI Secretary, sufficient to allow the DTI Secretary to exercise alter ego powers to reverse the
determination of the Tariff Commission. Again, considering that the power to impose tariffs in the first place is not
inherent in the President but arises only from congressional grant, we should affirm the congressional prerogative
to impose limitations and restrictions on such powers which do not normally belong to the executive in the first
place. Nowhere in the SMA does it state that the DTI Secretary may impose general safeguard measures without a
positive final determination by the Tariff Commission, or that the DTI Secretary may reverse or even review the
factual determination made by the Tariff Commission.
Congress in enacting the SMA and prescribing the roles to be played therein by the Tariff Commission and the
DTI Secretary did not envision that the President, or his/her alter egocould exercise supervisory powers over the
Tariff Commission. If truly Congress intended to allow the traditional alter ego principle to come to fore in the
peculiar setup established by the SMA, it would have assigned the role now played by the DTI Secretary under the
law instead to the NEDA, the body to which the Tariff Commission is attached under the Administrative Code.
The Court has no issue with upholding administrative control and supervision exercised by the head of an
executive department, but only over those subordinate offices that are attached to the department, or which are,
under statute, relegated under its supervision and control. To declare that a department secretary, even if acting
as alter ego of the President, may exercise such control or supervision over all executive offices below cabinet rank
would lead to absurd results such as those adverted to above. As applied to this case, there is no legal justification
for the DTI Secretary to exercise control, supervision, review or amendatory powers over the Tariff Commission
and its positive final determination. In passing, we note that there is, admittedly, a feasible mode by which
administrative review of the Tariff Commissions final determination could be had, but it is not the procedure
adopted by respondents and now suggested for affirmation. This mode shall be discussed in a forthcoming section.
The Separate Opinion asserts that the President, or his/her alter ego cannot be made a mere rubber stamp of
the Tariff Commission since Section 17, Article VII of the Constitution denominates the Chief Executive exercises
control over all executive departments, bureaus and offices. [80] But let us be clear that such executive control is not
absolute. The definition of the structure of the executive branch of government, and the corresponding degrees of
administrative control and supervision, is not the exclusive preserve of the executive. It may be effectively be
limited by the Constitution, by law, or by judicial decisions.
The Separate Opinion cites the respected constitutional law authority Fr. Joaquin Bernas, in support of the
proposition that such plenary power of executive control of the President cannot be restricted by a mere statute
passed by Congress. However, the cited passage from Fr. Bernas actually states, Since the Constitution has given
the President the power of control, with all its awesome implications, it is the Constitution alone which can curtail
such power.[81] Does the President have such tariff powers under the Constitution in the first place which may be
curtailed by the executive power of control? At the risk of redundancy, we quote Section 28(2), Article VI: The
Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government. Clearly the power to impose
tariffs belongs to Congress and not to the President.
It is within reason to assume the framers of the Constitution deemed it too onerous to spell out all the possible
limitations and restrictions on this presidential authority to impose tariffs. Hence, the Constitution especially allowed
Congress itself to prescribe such limitations and restrictions itself, a prudent move considering that such authority
inherently belongs to Congress and not the President. Since Congress has no power to amend the Constitution, it
should be taken to mean that such limitations and restrictions should be provided by mere statute. Then again,
even the presidential authority to impose tariffs arises only by mere statute. Indeed, this presidential privilege is
both contingent in nature and legislative in origin. These characteristics, when weighed against the aspect
of executive control and supervision, cannot militate against Congresss exercise of its inherent power to
tax.
The bare fact is that the administrative superstructure, for all its unwieldiness, is mere putty in the hands of
Congress. The functions and mandates of the particular executive departments and bureaus are not created by the
President, but by the legislative branch through the Administrative Code. [82] The President is the administrative
head of the executive department, as such obliged to see that every government office is managed and maintained
properly by the persons in charge of it in accordance with pertinent laws and regulations, and empowered to
promulgate rules and issuances that would ensure a more efficient management of the executive branch, for so
long as such issuances are not contrary to law.[83] Yet the legislature has the concurrent power to reclassify or
redefine the executive bureaucracy, including the relationship between various administrative agencies, bureaus
and departments, and ultimately, even the power to abolish executive departments and their components,
hamstrung only by constitutional limitations. The DTI itself can be abolished with ease by Congress through
deleting Title X, Book IV of the Administrative Code. The Tariff Commission can similarly be abolished through
legislative enactment. [84]
At the same time, Congress can enact additional tasks or responsibilities on either the Tariff Commission or
the DTI Secretary, such as their respective roles on the imposition of general safeguard measures under the
SMA. In doing so, the same Congress, which has the putative authority to abolish the Tariff Commission or
the DTI, is similarly empowered to alter or expand its functions through modalities which do not align with
established norms in the bureaucratic structure. The Court is bound to recognize the legislative prerogative to
prescribe such modalities, no matter how atypical they may be, in affirmation of the legislative power to restructure
the executive branch of government.
There are further limitations on the executive control adverted to by the Separate Opinion. The President, in
the exercise of executive control, cannot order a subordinate to disobey a final decision of this Court or any courts.
If the subordinate chooses to disobey, invoking sole allegiance to the President, the judicial processes can be
utilized to compel obeisance. Indeed, when public officers of the executive department take their oath of office, they
swear allegiance and obedience not to the President, but to the Constitution and the laws of the land. The
invocation of executive control must yield when under its subsumption includes an act that violates the law.
The Separate Opinion concedes that the exercise of executive control and supervision by the President is
bound by the Constitution and law.[85] Still, just three sentences after asserting that the exercise of executive control
must be within the bounds of the Constitution and law, the Separate Opinion asserts, the control power of the Chief
Executive emanates from the Constitution; no act of Congress may validly curtail it.[86] Laws are acts of Congress,
hence valid confusion arises whether the Separate Opinion truly believes the first proposition that executive control
is bound by law. This is a quagmire for the Separate Opinion to resolve for itself
The Separate Opinion unduly considers executive control as the ne plus ultra constitutional standard which
must govern in this case. But while the President may generally have the power to control, modify or set aside the
actions of a subordinate, such powers may be constricted by the Constitution, the legislature, and the judiciary. This
is one of the essences of the check-and-balance system in our tri-partite constitutional democracy. Not one head of
a branch of government may operate as a Caesar within his/her particular fiefdom.
Assuming there is a conflict between the specific limitation in Section 28 (2), Article VI of the Constitution and
the general executive power of control and supervision, the former prevails in the specific instance of safeguard
measures such as tariffs and imposts, and would thus serve to qualify the general grant to the President of the
power to exercise control and supervision over his/her subalterns.
Thus, if the Congress enacted the law so that the DTI Secretary is bound by the Tariff Commission in the
sense the former cannot impose general safeguard measures absent a final positive determination from the latter
the Court is obliged to respect such legislative prerogative, no matter how such arrangement deviates from
traditional norms as may have been enshrined in jurisprudence. The only ground under which such legislative
determination as expressed in statute may be successfully challenged is if such legislation contravenes the
Constitution. No such argument is posed by the respondents, who do not challenge the validity or constitutionality
of the SMA.
Given these premises, it is utterly reckless to examine the interrelationship between the Tariff Commission and
the DTI Secretary beyond the context of the SMA, applying instead traditional precepts on administrative control,
review and supervision. For that reason, the Decision deemed inapplicable respondents previous citations of Cario
v. Commissioner on Human Rights and Lamb v. Phipps, since the executive power adverted to in those cases had
not been limited by constitutional restrictions such as those imposed under Section 28(2), Article VI. [87]
 A similar observation can be made on the case of Sharp International Marketing v. Court of Appeals,[88] now
cited by Philcemcor, wherein the Court asserted that the Land Bank of the Philippines was required to exercise
independent judgment and not merely rubber-stamp deeds of sale entered into by the Department of Agrarian
Reform in connection with the agrarian reform program. Philcemcor attempts to demonstrate that the DTI
Secretary, as with the Land Bank of the Philippines, is required to exercise independent discretion and is not
expected to just merely accede to DAR-approved compensation packages. Yet again, such grant of independent
discretion is expressly called for by statute, particularly Section 18 of Rep. Act No. 6657 which specifically requires
the joint concurrence of the landowner and the DAR and the [Land Bank of the Philippines] on the amount of
compensation. Such power of review by the Land Bank is a consequence of clear statutory language, as is our
holding in the Decision that Section 5 explicitly requires a positive final determination by the Tariff Commission
before a general safeguard measure may be imposed. Moreover, such limitations under the SMA are coated by the
constitutional authority of Section 28(2), Article VI of the Constitution.
Nonetheless, is this administrative setup, as envisioned by Congress and enshrined into the SMA, truly
noxious to existing legal standards? The Decision acknowledged the internal logic of the statutory framework,
considering that the DTI cannot exercise review powers over an agency such as the Tariff Commission which is not
within its administrative jurisdiction; that the mechanism employed establishes a measure of check and balance
involving two government offices with different specializations; and that safeguard measures are the exception
rather than the rule, pursuant to our treaty obligations.[89]
We see no reason to deviate from these observations, and indeed can add similarly oriented comments.
Corollary to the legislative power to decree policies through legislation is the ability of the legislature to provide for
means in the statute itself to ensure that the said policy is strictly implemented by the body or office tasked so
tasked with the duty. As earlier stated, our treaty obligations dissuade the State for now from implementing default
protectionist trade measures such as tariffs, and allow the same only under specified conditions. [90]The conditions
enumerated under the GATT Agreement on Safeguards for the application of safeguard measures by a member
country are the same as the requisites laid down in Section 5 of the SMA. [91] To insulate the factual determination
from political pressure, and to assure that it be conducted by an entity especially qualified by reason of its general
functions to undertake such investigation, Congress deemed it necessary to delegate to the Tariff Commission the
function of ascertaining whether or not the those factual conditions exist to warrant the atypical imposition of
safeguard measures. After all, the Tariff Commission retains a degree of relative independence by virtue of its
attachment to the National Economic Development Authority, an independent planning agency of the
government,[92] and also owing to its vaunted expertise and specialization.
The matter of imposing a safeguard measure almost always involves not just one industry, but the national
interest as it encompasses other industries as well. Yet in all candor, any decision to impose a safeguard measure
is susceptible to all sorts of external pressures, especially if the domestic industry concerned is well-organized.
Unwarranted impositions of safeguard measures may similarly be detrimental to the national interest. Congress
could not be blamed if it desired to insulate the investigatory process by assigning it to a body with a putative
degree of independence and traditional expertise in ascertaining factual conditions. Affected industries would have
cause to lobby for or against the safeguard measures. The decision-maker is in the unenviable position of having to
bend an ear to listen to all concerned voices, including those which may speak softly but carry a big stick. Had the
law mandated that the decision be made on the sole discretion of an executive officer, such as the DTI Secretary, it
would be markedly easier for safeguard measures to be imposed or withheld based solely on political
considerations and not on the factual conditions that are supposed to predicate the decision.
Reference of the binding positive final determination to the Tariff Commission is of course, not a fail-safe
means to ensure a bias-free determination. But at least the legislated involvement of the Commission in the
process assures some measure of measure of check and balance involving two different governmental agencies
with disparate specializations. There is no legal or constitutional demand for such a setup, but its wisdom as policy
should be acknowledged. As prescribed by Congress, both the Tariff Commission and the DTI Secretary operate
within limited frameworks, under which nobody acquires an undue advantage over the other.
We recognize that Congress deemed it necessary to insulate the process in requiring that the factual
determination to be made by an ostensibly independent body of specialized competence, the Tariff Commission.
This prescribed framework, constitutionally sanctioned, is intended to prevent the baseless, whimsical, or
consideration-induced imposition of safeguard measures. It removes from the DTI Secretary jurisdiction over a
matter beyond his putative specialized aptitude, the compilation and analysis of picayune facts and determination of
their limited causal relations, and instead vests in the Secretary the broad choice on a matter within his
unquestionable competence, the selection of what particular safeguard measure would assist the duly beleaguered
local industry yet at the same time conform to national trade policy. Indeed, the SMA recognizes, and places
primary importance on the DTI Secretarys mandate to formulate trade policy, in his capacity as the Presidents alter
ego on trade, industry and investment-related matters.
At the same time, the statutory limitations on this authorized power of the DTI Secretary must prevail since the
Constitution itself demands the enforceability of those limitations and restrictions as imposed by Congress. Policy
wisdom will not save a law from infirmity if the statutory provisions violate the Constitution. But since the
Constitution itself provides that the President shall be constrained by the limits and restrictions imposed by
Congress and since these limits and restrictions are so clear and categorical, then the Court has no choice but to
uphold the reins.
Even assuming that this prescribed setup made little sense, or seemed uncommonly silly,[93] the Court is
bound by propriety not to dispute the wisdom of the legislature as long as its acts do not violate the Constitution.
Since there is no convincing demonstration that the SMA contravenes the Constitution, the Court is wont to respect
the administrative regimen propounded by the law, even if it allots the Tariff Commission a higher degree of
puissance than normally expected. It is for this reason that the traditional conceptions of administrative review or
quasi-judicial power cannot control in this case.
Indeed, to apply the latter concept would cause the Court to fall into a linguistic trap owing to the multi-faceted
denotations the term quasi-judicial has come to acquire.
Under the SMA, the Tariff Commission undertakes formal hearings, [94] receives and evaluates testimony and
evidence by interested parties,[95] and renders a decision is rendered on the basis of the evidence presented, in the
form of the final determination. The final determination requires a conclusion whether the importation of the product
under consideration is causing serious injury or threat to a domestic industry producing like products or directly
competitive products, while evaluating all relevant factors having a bearing on the situation of the domestic
industry.[96] This process aligns conformably with definition provided by Blacks Law Dictionary of quasi-judicial as
the action, discretion, etc., of public administrative officers or bodies, who are required to investigate facts, or
ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them, as a basis for
their official action, and to exercise discretion of a judicial nature.[97]
However, the Tariff Commission is not empowered to hear actual cases or controversies lodged directly before
it by private parties. It does not have the power to issue writs of injunction or enforcement of its determination.
These considerations militate against a finding of quasi-judicial powers attributable to the Tariff Commission,
considering the pronouncement that quasi-judicial adjudication would mean a determination of rights privileges and
duties resulting in a decision or order which applies to a specific situation. [98]
Indeed, a declaration that the Tariff Commission possesses quasi-judicial powers, even if ascertained for the
limited purpose of exercising its functions under the SMA, may have the unfortunate effect of expanding the
Commissions powers beyond that contemplated by law. After all, the Tariff Commission is by convention, a fact-
finding body, and its role under the SMA, burdened as it is with factual determination, is but a mere continuance of
this tradition. However, Congress through the SMA offers a significant deviation from this traditional role by tying
the decision by the DTI Secretary to impose a safeguard measure to the required positive factual determination by
the Tariff Commission. Congress is not bound by past traditions, or even by the jurisprudence of this Court, in
enacting legislation it may deem as suited for the times. The sole benchmark for judicial substitution of
congressional wisdom is constitutional transgression, a standard which the respondents do not even attempt to
match.
Respondents Suggested Interpretation
Of the SMA Transgresses Fair Play
Respondents have belabored the argument that the Decisions interpretation of the SMA, particularly of the role
of the Tariff Commission vis--vis the DTI Secretary, is noxious to traditional notions of administrative control and
supervision. But in doing so, they have failed to acknowledge the congressional prerogative to redefine
administrative relationships, a license which falls within the plenary province of Congress under our representative
system of democracy. Moreover, respondents own suggested interpretation falls wayward of expectations of
practical fair play.
Adopting respondents suggestion that the DTI Secretary may disregard the factual findings of the Tariff
Commission and investigatory process that preceded it, it would seem that the elaborate procedure undertaken by
the Commission under the SMA, with all the attendant guarantees of due process, is but an inutile spectacle. As
Justice Garcia noted during the oral arguments, why would the DTI Secretary bother with the Tariff Commission
and instead conduct the investigation himself.[99]
 Certainly, nothing in the SMA authorizes the DTI Secretary, after making the preliminary determination, to
personally oversee the investigation, hear out the interested parties, or receive evidence. [100] In fact, the SMA does
not even require the Tariff Commission, which is tasked with the custody of the submitted evidence, [101] to turn over
to the DTI Secretary such evidence it had evaluated in order to make its factual determination.[102] Clearly, as
Congress tasked it to be, it is the Tariff Commission and not the DTI Secretary which acquires the necessary
intimate acquaintance with the factual conditions and evidence necessary for the imposition of the general
safeguard measure. Why then favor an interpretation of the SMA that leaves the findings of the Tariff Commission
bereft of operative effect and makes them subservient to the wishes of the DTI Secretary, a personage with lesser
working familiarity with the relevant factual milieu? In fact, the bare theory of the respondents would effectively
allow the DTI Secretary to adopt, under the subterfuge of his discretion, the factual determination of a private
investigative group hired by the industry concerned, and reject the investigative findings of the Tariff Commission
as mandated by the SMA. It would be highly irregular to substitute what the law clearly provides for a dubious setup
of no statutory basis that would be readily susceptible to rank chicanery.
Moreover, the SMA guarantees the right of all concerned parties to be heard, an elemental requirement of due
process, by the Tariff Commission in the context of its investigation. The DTI Secretary is not similarly empowered
or tasked to hear out the concerns of other interested parties, and if he/she does so, it arises purely out of volition
and not compulsion under law.
Indeed, in this case, it is essential that the position of other than that of the local cement industry should be
given due consideration, cement being an indispensable need for the operation of other industries such as housing
and construction. While the general safeguard measures may operate to the better interests of the domestic
cement industries, its deprivation of cheaper cement imports may similarly work to the detriment of these other
domestic industries and correspondingly, the national interest. Notably, the Tariff Commission in this case heard
the views on the application of representatives of other allied industries such as the housing, construction, and
cement-bag industries, and other interested parties such as consumer groups and foreign governments. [103] It is
only before the Tariff Commission that their views had been heard, and this is because it is only the Tariff
Commission which is empowered to hear their positions. Since due process requires a judicious consideration of all
relevant factors, the Tariff Commission, which is in a better position to hear these parties than the DTI Secretary, is
similarly more capable to render a determination conformably with the due process requirements than the DTI
Secretary.
In a similar vein, Southern Cross aptly notes that in instances when it is the DTI Secretary who initiates motu
proprio the application for the safeguard measure pursuant to Section 6 of the SMA, respondents suggested
interpretation would result in the awkward situation wherein the DTI Secretary would rule upon his own application
after it had been evaluated by the Tariff Commission. Pertinently cited is our ruling in Corona v. Court of
Appeals[104] that no man can be at once a litigant and judge.[105] Certainly, this anomalous situation is avoided if it is
the Tariff Commission which is tasked with arriving at the final determination whether the conditions exist to warrant
the general safeguard measures. This is the setup provided for by the express provisions of the SMA, and the
problem would arise only if we adopt the interpretation urged upon by respondents.
The Possibility for Administrative Review
Of the Tariff Commissions Determination
The Court has been emphatic that a positive final determination from the Tariff Commission is required in
order that the DTI Secretary may impose a general safeguard measure, and that the DTI Secretary has no power to
exercise control and supervision over the Tariff Commission and its final determination. These conclusions are the
necessary consequences of the applicable provisions of the Constitution, the SMA, and laws such as the
Administrative Code. However, the law is silent though on whether this positive final determination may otherwise
be subjected to administrative review.
There is no evident legislative intent by the authors of the SMA to provide for a procedure of administrative
review. If ever there is a procedure for administrative review over the final determination of the Tariff Commission,
such procedure must be done in a manner that does not contravene or disregard legislative prerogatives as
expressed in the SMA or the Administrative Code, or fundamental constitutional limitations.
In order that such procedure of administrative review would not contravene the law and the constitutional
scheme provided by Section 28(2), Article VI, it is essential to assert that the positive final determination by the
Tariff Commission is indispensable as a requisite for the imposition of a general safeguard measure. The
submissions of private respondents and the Separate Opinion cannot be sustained insofar as they hold that the DTI
Secretary can peremptorily ignore or disregard the determinations made by the Tariff Commission. However, if the
mode of administrative review were in such a manner that the administrative superior of the Tariff Commission
were to modify or alter its determination, then such reversal may still be valid within the confines of Section 5 of the
SMA, for technically it is still the Tariff Commissions determination, administratively revised as it may be, that would
serve as the basis for the DTI Secretarys action.
However, and fatally for the present petitions, such administrative review cannot be conducted by the DTI
Secretary. Even if conceding that the Tariff Commissions findings may be administratively reviewed, the DTI
Secretary has no authority to review or modify the same. We have been emphatic on the reasons such as that
there is no traditional or statutory basis placing the Commission under the control and supervision of the DTI; that
to allow such would contravene due process, especially if the DTI itself were to apply for the safeguard
measures motu proprio. To hold otherwise would destroy the administrative hierarchy, contravene constitutional
due process, and disregard the limitations or restrictions provided in the SMA.
Instead, assuming administrative review were available, it is the NEDA that may conduct such review following
the principles of administrative law, and the NEDAs decision in turn is reviewable by the Office of the President.
The decision of the Office of the President then effectively substitutes as the determination of the Tariff
Commission, which now forms the basis of the DTI Secretarys decision, which now would be ripe for judicial review
by the CTA under Section 29 of the SMA. This is the only way that administrative review of the Tariff Commissions
determination may be sustained without violating the SMA and its constitutional restrictions and limitations, as well
as administrative law.
In bare theory, the NEDA may review, alter or modify the Tariff Commissions final determination, the
Commission being an attached agency of the NEDA. Admittedly, there is nothing in the SMA or any other statute
that would prevent the NEDA to exercise such administrative review, and successively, for the President to
exercise in turn review over the NEDAs decision.
Nonetheless, in acknowledging this possibility, the Court, without denigrating the bare principle that
administrative officers may exercise control and supervision over the acts of the bodies under its jurisdiction,
realizes that this comes at the expense of a speedy resolution to an application for a safeguard measure, an
application dependent on fluctuating factual conditions. The further delay would foster uncertainty and insecurity
within the industry concerned, as well as with all other allied industries, which in turn may lead to some measure of
economic damage. Delay is certain, since judicial review authorized by law and not administrative review would
have the final say. The fact that the SMA did not expressly prohibit administrative review of the final determination
of the Tariff Commission does not negate the supreme advantages of engendering exclusive judicial review over
questions arising from the imposition of a general safeguard measure.
In any event, even if we conceded the possibility of administrative review of the Tariff Commissions final
determination by the NEDA, such would not deny merit to the present petition. It does not change the fact that the
Court of Appeals erred in ruling that the DTI Secretary was not bound by the negative final determination of the
Tariff Commission, or that the DTI Secretary acted without jurisdiction when he imposed general safeguard
measures despite the absence of the statutory positive final determination of the Commission.
IV. Courts Interpretation of SMA
In Harmony with Other
Constitutional Provisions
In response to our citation of Section 28(2), Article VI, respondents elevate two arguments grounded in
constitutional law. One is based on another constitutional provision, Section 12, Article XIII, which mandates that
[t]he State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods and
adopt measures that help make them competitive. By no means does this provision dictate that the Court favor the
domestic industry in all competing claims that it may bring before this Court. If it were so, judicial proceedings in this
country would be rendered a mockery, resolved as they would be, on the basis of the personalities of the litigants
and not their legal positions.
Moreover, the duty imposed on by Section 12, Article XIII falls primarily with Congress, which in that regard
enacted the SMA, a law designed to protect domestic industries from the possible ill-effects of our accession to the
global trade order. Inconveniently perhaps for respondents, the SMA also happens to provide for a procedure under
which such protective measures may be enacted. The Court cannot just impose what it deems as the spirit of the
law without giving due regard to its letter.
In like-minded manner, the Separate Opinion loosely states that the purpose of the SMA is to protect or
safeguard local industries from increased importation of foreign products. [106]This inaccurately leaves the
impression that the SMA ipso facto unravels a protective cloak that shelters all local industries and producers, no
matter the conditions. Indeed, our country has knowingly chosen to accede to the world trade regime, as expressed
in the GATT and WTO Agreements, despite the understanding that local industries might suffer ill-effects,
especially with the easier entry of competing foreign products. At the same time, these international agreements
were designed to constrict protectionist trade policies by its member-countries. Hence, the median, as expressed
by the SMA, does allow for the application of protectionist measures such as tariffs, but only after an elaborate
process of investigation that ensures factual basis and indispensable need for such measures. More accurately, the
purpose of the SMA is to provide a process for the protection or safeguarding of domestic industries that have duly
established that there is substantial injury or threat thereof directly caused by the increased imports. In short,
domestic industries are not entitled to safeguard measures as a matter of right or influence.
Respondents also make the astounding argument that the imposition of general safeguard measures should
not be seen as a taxation measure, but instead as an exercise of police power. The vain hope of respondents in
divorcing the safeguard measures from the concept of taxation is to exclude from consideration Section 28(2),
Article VI of the Constitution.
This argument can be debunked at length, but it deserves little attention. The motivation behind many taxation
measures is the implementation of police power goals. Progressive income taxes alleviate the margin between rich
and poor; the so-called sin taxes on alcohol and tobacco manufacturers help dissuade the consumers from
excessive intake of these potentially harmful products. Taxation is distinguishable from police power as to the
means employed to implement these public good goals. Those doctrines that are unique to taxation arose from
peculiar considerations such as those especially punitive effects of taxation, [107] and the belief that taxes are the
lifeblood of the state.[108] These considerations necessitated the evolution of taxation as a distinct legal concept
from police power. Yet at the same time, it has been recognized that taxation may be made the implement of the
states police power.[109]
Even assuming that the SMA should be construed exclusively as a police power measure, the Court
recognizes that police power is lodged primarily in the national legislature, though it may also be exercised by the
executive branch by virtue of a valid delegation of legislative power.[110] Considering these premises, it is clear that
police power, however illimitable in theory, is still exercised within the confines of implementing legislation. To
declare otherwise is to sanction rule by whim instead of rule of law. The Congress, in enacting the SMA, has
delegated the power to impose general safeguard measures to the executive branch, but at the same time
subjected such imposition to limitations, such as the requirement of a positive final determination by the Tariff
Commission under Section 5. For the executive branch to ignore these boundaries imposed by Congress is to set
up an ignoble clash between the two co-equal branches of government. Considering that the exercise of police
power emanates from legislative authority, there is little question that the prerogative of the legislative branch shall
prevail in such a clash.
V. Assailed Decision Consistent
With Ruling in Taada v. Angara
Public respondents allege that the Decision is contrary to our holding in Taada v. Angara,[111] since the Court
noted therein that the GATT itself provides built-in protection from unfair foreign competition and trade practices,
which according to the public respondents, was a reason why the Honorable [Court] ruled the way it did. On the
other hand, the Decision eliminates safeguard measures as a mode of defense.
This is balderdash, as with any and all claims that the Decision allows foreign industries to ride roughshod
over our domestic enterprises. The Decision does not prohibit the imposition of general safeguard measures to
protect domestic industries in need of protection. All it affirms is that the positive final determination of the Tariff
Commission is first required before the general safeguard measures are imposed and implemented, a neutral
proposition that gives no regard to the nationalities of the parties involved. A positive determination by the Tariff
Commission is hardly the elusive Shangri-la of administrative law. If a particular industry finds it difficult to obtain a
positive final determination from the Tariff Commission, it may be simply because the industry is still sufficiently
competitive even in the face of foreign competition. These safeguard measures are designed to ensure salvation,
not avarice.
Respondents well have the right to drape themselves in the colors of the flag. Yet these postures hardly
advance legal claims, or nationalism for that matter. The fineries of the costume pageant are no better measure of
patriotism than simple obedience to the laws of the Fatherland. And even assuming that respondents are motivated
by genuine patriotic impulses, it must be remembered that under the setup provided by the SMA, it is the facts, and
not impulse, that determine whether the protective safeguard measures should be imposed. As once orated, facts
are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot
alter the state of facts and evidence.[112]
 It is our goal as judges to enforce the law, and not what we might deem as correct economic policy. Towards
this end, we should not construe the SMA to unduly favor or disfavor domestic industries, simply because the law
itself provides for a mechanism by virtue of which the claims of these industries are thoroughly evaluated before
they are favored or disfavored. What we must do is to simply uphold what the law says. Section 5 says that the DTI
Secretary shall impose the general safeguard measures upon the positive final determination of the Tariff
Commission. Nothing in the whereas clauses or the invisible ink provisions of the SMA can magically delete the
words positive final determination and Tariff Commission from Section 5.
VI. On Forum-Shopping
We remain convinced that there was no willful and deliberate forum-shopping in this case by Southern Cross.
The causes of action that animate this present petition for review and the petition for review with the CTA are
distinct from each other, even though they relate to similar factual antecedents. Yet it also appears that contrary to
the undertaking signed by the President of Southern Cross, Hironobu Ryu, to inform this Court of any similar action
or proceeding pending before any court, tribunal or agency within five (5) days from knowledge thereof, Southern
Cross informed this Court only on 12 August 2003 of the petition it had filed with the CTA eleven days earlier. An
appropriate sanction is warranted for such failure, but not the dismissal of the petition.
VII. Effects of Courts Resolution
Philcemcor argues that the granting of Southern Crosss Petition should not necessarily lead to the voiding of
the Decision of the DTI Secretary dated 5 August 2003 imposing the general safeguard measures. For Philcemcor,
the availability of appeal to the CTA as an available and adequate remedy would have made the Court of
Appeals Decision merely erroneous or irregular, but not void. Moreover, the said Decision merely required the DTI
Secretary to render a decision, which could have very well been a decision not to impose a safeguard measure;
thus, it could not be said that the annulled decision resulted from the judgment of the Court of Appeals.
The Court of Appeals Decision was annulled precisely because the appellate court did not have the power to
rule on the petition in the first place. Jurisdiction is necessarily the power to decide a case, and a court which does
not have the power to adjudicate a case is one that is bereft of jurisdiction. We find no reason to disturb our earlier
finding that the Court of Appeals Decision is null and void.
At the same time, the Court in its Decision paid particular heed to the peculiarities attaching to the 5 August
2003 Decision of the DTI Secretary. In the DTI Secretarys Decision, he expressly stated that as a result of the
Court of Appeals Decision, there is no legal impediment for the Secretary to decide on the application. Yet the truth
remained that there was a legal impediment, namely, that the decision of the appellate court was not yet final and
executory. Moreover, it was declared null and void, and since the DTI Secretary expressly denominated the Court
of Appeals Decision as his basis for deciding to impose the safeguard measures, the latter decision must be voided
as well. Otherwise put, without the Court of Appeals Decision, the DTI Secretarys Decision of 5 August 2003 would
not have been rendered as well.
Accordingly, the Court reaffirms as a nullity the DTI Secretarys Decision dated 5 August 2003. As a necessary
consequence, no further action can be taken on Philcemcors Petition for Extension of the Safeguard Measure.
Obviously, if the imposition of the general safeguard measure is void as we declared it to be, any extension thereof
should likewise be fruitless. The proper remedy instead is to file a new application for the imposition of safeguard
measures, subject to the conditions prescribed by the SMA. Should this step be eventually availed of, it is only
hoped that the parties involved would content themselves in observing the proper procedure, instead of making a
mockery of the rule of law.
WHEREFORE, respondents Motions for Reconsideration are DENIED WITH FINALITY.
Respondent DTI Secretary is hereby ENJOINED from taking any further action on the pending Petition for
Extension of the Safeguard Measure.
Hironobu Ryu, President of petitioner Southern Cross Cement Corporation, and Angara Abello Concepcion
Regala & Cruz, counsel petitioner, are hereby given FIVE (5) days from receipt of this Resolution to EXPLAIN why
they should not be meted disciplinary sanction for failing to timely inform the Court of the filing of Southern
Crosss Petition for Review with the Court of Tax Appeals, as adverted to earlier in this Resolution.
SO ORDERED.
BUREAU OF CUSTOMS EMPLOYEES vs. TEVES
G.R. No. 181704 December 6, 2011

DECISION
Before this Court is a petition1 for certiorari and prohibition with prayer for injunctive relief/s under Rule 65 of
the 1997 Rules of Civil Procedure, as amended, to declare Republic Act (R.A.) No. 9335,2 otherwise known as
the Attrition Act of 2005, and its Implementing Rules and Regulations3 (IRR) unconstitutional, and the
implementation thereof be enjoined permanently.
The Facts
On January 25, 2005, former President Gloria Macapagal-Arroyo signed into law R.A. No. 9335 which took effect
on February 11, 2005.
In Abakada Guro Party List v. Purisima4 (Abakada), we said of R.A. No. 9335:
RA [No.] 9335 was enacted to optimize the revenue-generation capability and collection of the Bureau of Internal
Revenue (BIR) and the Bureau of Customs (BOC). The law intends to encourage BIR and BOC officials and
employees to exceed their revenue targets by providing a system of rewards and sanctions through the creation of
a Rewards and Incentives Fund (Fund) and a Revenue Performance Evaluation Board (Board). It covers all officials
and employees of the BIR and the BOC with at least six months of service, regardless of employment status.
The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets for the year, as
determined by the Development Budget and Coordinating Committee (DBCC). Any incentive or reward is taken
from the fund and allocated to the BIR and the BOC in proportion to their contribution in the excess collection of the
targeted amount of tax revenue.
The Boards in the BIR and the BOC are composed of the Secretary of the Department of Finance (DOF) or his/her
Undersecretary, the Secretary of the Department of Budget and Management (DBM) or his/her Undersecretary, the
Director General of the National Economic Development Authority (NEDA) or his/her Deputy Director General, the
Commissioners of the BIR and the BOC or their Deputy Commissioners, two representatives from the rank-and-file
employees and a representative from the officials nominated by their recognized organization.
Each Board has the duty to (1) prescribe the rules and guidelines for the allocation, distribution and release of the
Fund; (2) set criteria and procedures for removing from the service officials and employees whose revenue
collection falls short of the target; (3) terminate personnel in accordance with the criteria adopted by the Board; (4)
prescribe a system for performance evaluation; (5) perform other functions, including the issuance of rules and
regulations and (6) submit an annual report to Congress.
The DOF, DBM, NEDA, BIR, BOC and the Civil Service Commission (CSC) were tasked to promulgate and issue
the implementing rules and regulations of RA [No.] 9335, to be approved by a Joint Congressional Oversight
Committee created for such purpose.5
The Joint Congressional Oversight Committee approved the assailed IRR on May 22, 2006. Subsequently, the IRR
was published on May 30, 2006 in two newspapers of general circulation, the Philippine Star and the Manila
Standard, and became effective fifteen (15) days later. 6
Contending that the enactment and implementation of R.A. No. 9335 are tainted with constitutional infirmities in
violation of the fundamental rights of its members, petitioner Bureau of Customs Employees Association (BOCEA),
an association of rank-and-file employees of the Bureau of Customs (BOC), duly registered with the Department of
Labor and Employment (DOLE) and the Civil Service Commission (CSC), and represented by its National
President, Mr. Romulo A. Pagulayan (Pagulayan), directly filed the present petition before this Court against
respondents Margarito B. Teves, in his capacity as Secretary of the Department of Finance (DOF), Commissioner
Napoleon L. Morales (Commissioner Morales), in his capacity as BOC Commissioner, and Lilian B. Hefti, in her
capacity as Commissioner of the Bureau of Internal Revenue (BIR). In its petition, BOCEA made the following
averments:
Sometime in 2008, high-ranking officials of the BOC pursuant to the mandate of R.A. No. 9335 and its IRR, and in
order to comply with the stringent deadlines thereof, started to disseminate Collection District Performance
Contracts7 (Performance Contracts) for the lower ranking officials and rank-and-file employees to sign. The
Performance Contract pertinently provided:
xxxx
WHEREAS, pursuant to the provisions of Sec. 25 (b) of the Implementing Rules and Regulations (IRR) of the
Attrition Act of 2005, that provides for the setting of criteria and procedures for removing from the service Officials
and Employees whose revenue collection fall short of the target in accordance with Section 7 of Republic Act 9335.
xxxx
NOW, THEREFORE, for and in consideration of the foregoing premises, parties unto this Agreement hereby agree
and so agreed to perform the following:
xxxx
2. The "Section 2, PA/PE" hereby accepts the allocated Revenue Collection Target and further accepts/commits to
meet the said target under the following conditions:
a.) That he/she will meet the allocated Revenue Collection Target and thereby undertakes and binds
himself/herself that in the event the revenue collection falls short of the target with due consideration of all
relevant factors affecting the level of collection as provided in the rules and regulations promulgated under
the Act and its IRR, he/she will voluntarily submit to the provisions of Sec. 25 (b) of the IRR and Sec. 7 of
the Act; and
b.) That he/she will cascade and/or allocate to respective Appraisers/Examiners or Employees under
his/her section the said Revenue Collection Target and require them to execute a Performance Contract,
and direct them to accept their individual target. The Performance Contract executed by the respective
Examiners/Appraisers/Employees shall be submitted to the Office of the Commissioner through the LAIC
on or before March 31, 2008.
x x x x8
BOCEA opined that the revenue target was impossible to meet due to the Government’s own policies on reduced
tariff rates and tax breaks to big businesses, the occurrence of natural calamities and because of other economic
factors. BOCEA claimed that some BOC employees were coerced and forced to sign the Performance Contract.
The majority of them, however, did not sign. In particular, officers of BOCEA were summoned and required to sign
the Performance Contracts but they also refused. To ease the brewing tension, BOCEA claimed that its officers
sent letters, and sought several dialogues with BOC officials but the latter refused to heed them.
In addition, BOCEA alleged that Commissioner Morales exerted heavy pressure on the District Collectors, Chiefs of
Formal Entry Divisions, Principal Customs Appraisers and Principal Customs Examiners of the BOC during
command conferences to make them sign their Performance Contracts. Likewise, BOC Deputy Commissioner
Reynaldo Umali (Deputy Commissioner Umali) individually spoke to said personnel to convince them to sign said
contracts. Said personnel were threatened that if they do not sign their respective Performance Contracts, they
would face possible reassignment, reshuffling, or worse, be placed on floating status. Thus, all the District
Collectors, except a certain Atty. Carlos So of the Collection District III of the Ninoy Aquino International Airport
(NAIA), signed the Performance Contracts.
BOCEA further claimed that Pagulayan was constantly harassed and threatened with lawsuits. Pagulayan
approached Deputy Commissioner Umali to ask the BOC officials to stop all forms of harassment, but the latter
merely said that he would look into the matter. On February 5, 2008, BOCEA through counsel wrote the Revenue
Performance Evaluation Board (Board) to desist from implementing R.A. No. 9335 and its IRR and from requiring
rank-and-file employees of the BOC and BIR to sign Performance Contracts.9 In his letter-reply10 dated February
12, 2008, Deputy Commissioner Umali denied having coerced any BOC employee to sign a Performance Contract.
He also defended the BOC, invoking its mandate of merely implementing the law. Finally, Pagulayan and BOCEA’s
counsel, on separate occasions, requested for a certified true copy of the Performance Contract from Deputy
Commissioner Umali but the latter failed to furnish them a copy.11
This petition was filed directly with this Court on March 3, 2008. BOCEA asserted that in view of the
unconstitutionality of R.A. No. 9335 and its IRR, and their adverse effects on the constitutional rights of BOC
officials and employees, direct resort to this Court is justified. BOCEA argued, among others, that its members and
other BOC employees are in great danger of losing their jobs should they fail to meet the required quota provided
under the law, in clear violation of their constitutional right to security of tenure, and at their and their respective
families’ prejudice.
In their Comment,12 respondents, through the Office of the Solicitor General (OSG), countered that R.A. No. 9335
and its IRR do not violate the right to due process and right to security of tenure of BIR and BOC employees. The
OSG stressed that the guarantee of security of tenure under the 1987 Constitution is not a guarantee of perpetual
employment. R.A. No. 9335 and its IRR provided a reasonable and valid ground for the dismissal of an employee
which is germane to the purpose of the law. Likewise, R.A. No. 9335 and its IRR provided that an employee may
only be separated from the service upon compliance with substantive and procedural due process. The OSG added
that R.A. No. 9335 and its IRR must enjoy the presumption of constitutionality.
In its Reply,13 BOCEA claimed that R.A. No. 9335 employs means that are unreasonable to achieve its stated
objectives; that the law is unduly oppressive of BIR and BOC employees as it shifts the extreme burden upon their
shoulders when the Government itself has adopted measures that make collection difficult such as reduced tariff
rates to almost zero percent and tax exemption of big businesses; and that the law is discriminatory of BIR and
BOC employees. BOCEA manifested that only the high-ranking officials of the BOC benefited largely from the
reward system under R.A. No. 9335 despite the fact that they were not the ones directly toiling to collect revenue.
Moreover, despite the BOCEA’s numerous requests,14 BOC continually refused to provide BOCEA the Expenditure
Plan on how such reward was distributed.
Since BOCEA was seeking similar reliefs as that of the petitioners in Abakada Guro Party List v. Purisima, BOCEA
filed a Motion to Consolidate15 the present case with Abakada on April 16, 2008. However, pending action on said
motion, the Court rendered its decision in Abakada on August 14, 2008. Thus, the consolidation of this case with
Abakada was rendered no longer possible.16
In Abakada, this Court, through then Associate Justice, now Chief Justice Renato C. Corona, declared Section
1217of R.A. No. 9335 creating a Joint Congressional Oversight Committee to approve the IRR as unconstitutional
and violative of the principle of separation of powers. However, the constitutionality of the remaining provisions of
R.A. No. 9335 was upheld pursuant to Section 1318 of R.A. No. 9335. The Court also held that until the contrary is
shown, the IRR of R.A. No. 9335 is presumed valid and effective even without the approval of the Joint
Congressional Oversight Committee.19
Notwithstanding our ruling in Abakada, both parties complied with our Resolution20 dated February 10, 2009,
requiring them to submit their respective Memoranda.
The Issues
BOCEA raises the following issues:
I.
WHETHER OR NOT THE ATTRITION LAW, REPUBLIC ACT [NO.] 9335, AND ITS IMPLEMENTING RULES AND
REGULATIONS ARE UNCONSTITUTIONAL AS THESE VIOLATE THE RIGHT TO DUE PROCESS OF THE
COVERED BIR AND BOC OFFICIALS AND EMPLOYEES[;]
II.
WHETHER OR NOT THE ATTRITION LAW, REPUBLIC ACT [NO.] 9335, AND ITS IMPLEMENTING RULES AND
REGULATIONS ARE UNCONSTITUTIONAL AS THESE VIOLATE THE RIGHT OF BIR AND BOC OFFICIALS
AND EMPLOYEES TO THE EQUAL PROTECTION OF THE LAWS[;]
III.
WHETHER OR NOT REPUBLIC ACT [NO.] 9335 AND ITS IMPLEMENTING RULES AND REGULATIONS
VIOLATE THE RIGHT TO SECURITY OF TENURE OF BIR AND BOC OFFICIALS AND EMPLOYEES AS
ENSHRINED UNDER SECTION 2 (3), ARTICLE IX (B) OF THE CONSTITUTION[;]
IV.
WHETHER OR NOT REPUBLIC ACT [NO.] 9335 AND ITS IMPLEMENTING RULES AND REGULATIONS ARE
UNCONSTITUTIONAL AS THEY CONSTITUTE UNDUE DELEGATION OF LEGISLATIVE POWERS TO THE
REVENUE PERFORMANCE EVALUATION BOARD IN VIOLATION OF THE PRINCIPLE OF SEPARATION OF
POWERS ENSHRINED IN THE CONSTITUTION[; AND]
V.
WHETHER OR NOT REPUBLIC ACT [NO.] 9335 IS A BILL OF ATTAINDER AND HENCE[,]
UNCONSTITUTIONAL BECAUSE IT INFLICTS PUNISHMENT THROUGH LEGISLATIVE FIAT UPON A
PARTICULAR GROUP OR CLASS OF OFFICIALS AND EMPLOYEES WITHOUT TRIAL. 21
BOCEA manifested that while waiting for the Court to give due course to its petition, events unfolded showing the
patent unconstitutionality of R.A. No. 9335. It narrated that during the first year of the implementation of R.A. No.
9335, BOC employees exerted commendable efforts to attain their revenue target of ₱196 billion which they
surpassed by as much as ₱2 billion for that year alone. However, this was attained only because oil companies
made advance tax payments to BOC. Moreover, BOC employees were given their "reward" for surpassing said
target only in 2008, the distribution of which they described as unjust, unfair, dubious and fraudulent because only
top officials of BOC got the huge sum of reward while the employees, who did the hard task of collecting, received
a mere pittance of around ₱8,500.00. In the same manner, the Bonds Division of BOC-NAIA collected 400+% of its
designated target but the higher management gave out to the employees a measly sum of ₱8,500.00 while the top
level officials partook of millions of the excess collections. BOCEA relies on a piece of information revealed by a
newspaper showing the list of BOC officials who apparently earned huge amounts of money by way of reward. 22 It
claims that the recipients thereof included lawyers, support personnel and other employees, including a dentist,
who performed no collection functions at all. These alleged anomalous selection, distribution and allocation of
rewards was due to the failure of R.A. No. 9335 to set out clear guidelines. 23
In addition, BOCEA avers that the Board initiated the first few cases of attrition for the Fiscal Year 2007 by
subjecting five BOC officials from the Port of Manila to attrition despite the fact that the Port of Manila substantially
complied with the provisions of R.A. No. 9335. It is thus submitted that the selection of these officials for attrition
without proper investigation was nothing less than arbitrary. Further, the legislative and executive departments’
promulgation of issuances and the Government’s accession to regional trade agreements have caused a significant
diminution of the tariff rates, thus, decreasing over-all collection. These unrealistic settings of revenue targets
seriously affect BIR and BOC employees tasked with the burden of collection, and worse, subjected them to
attrition.24
BOCEA assails the constitutionality of R.A. No. 9335 and its IRR on the following grounds:
1. R.A. No. 9335 and its IRR violate the BIR and BOC employees’ right to due process because the
termination of employees who had not attained their revenue targets for the year is peremptory and done
without any form of hearing to allow said employees to ventilate their side. Moreover, R.A. No. 9335 and its
IRR do not comply with the requirements under CSC rules and regulations as the dismissal in this case is
immediately executory. Such immediately executory nature of the Board’s decision negates the remedies
available to an employee as provided under the CSC rules.
2. R.A. No. 9335 and its IRR violate the BIR and BOC employees’ right to equal protection of the law
because R.A. No. 9335 and its IRR unduly discriminates against BIR and BOC employees as compared to
employees of other revenue generating government agencies like the Philippine Amusement and Gaming
Corporation, Department of Transportation and Communication, the Air Transportation Office, the Land
Transportation Office, and the Philippine Charity Sweepstakes Office, among others, which are not subject
to attrition.
3. R.A. No. 9335 and its IRR violate the BIR and BOC employees’ right to security of tenure because R.A.
No. 9335 and its IRR effectively removed remedies provided in the ordinary course of administrative
procedure afforded to government employees. The law likewise created another ground for dismissal, i.e.,
non-attainment of revenue collection target, which is not provided under CSC rules and which is, by its
nature, unpredictable and therefore arbitrary and unreasonable.
4. R.A. No. 9335 and its IRR violate the 1987 Constitution because Congress granted to the Revenue
Performance Evaluation Board (Board) the unbridled discretion of formulating the criteria for termination,
the manner of allocating targets, the distribution of rewards and the determination of relevant factors
affecting the targets of collection, which is tantamount to undue delegation of legislative power.
5. R.A. No. 9335 is a bill of attainder because it inflicts punishment upon a particular group or class of
officials and employees without trial. This is evident from the fact that the law confers upon the Board the
power to impose the penalty of removal upon employees who do not meet their revenue targets; that the
same is without the benefit of hearing; and that the removal from service is immediately executory. Lastly, it
disregards the presumption of regularity in the performance of the official functions of a public officer. 25
On the other hand, respondents through the OSG stress that except for Section 12 of R.A. No. 9335, R.A. No. 9335
and its IRR are constitutional, as per our ruling in Abakada. Nevertheless, the OSG argues that the classification of
BIR and BOC employees as public officers under R.A. No. 9335 is based on a valid and substantial distinction
since the revenue generated by the BIR and BOC is essentially in the form of taxes, which is the lifeblood of the
State, while the revenue produced by other agencies is merely incidental or secondary to their governmental
functions; that in view of their mandate, and for purposes of tax collection, the BIR and BOC are sui generis; that
R.A. No. 9335 complies with the "completeness" and "sufficient standard" tests for the permissive delegation of
legislative power to the Board; that the Board exercises its delegated power consistent with the policy laid down in
the law, that is, to optimize the revenue generation capability and collection of the BIR and the BOC; that
parameters were set in order that the Board may identify the officials and employees subject to attrition, and the
proper procedure for their removal in case they fail to meet the targets set in the Performance Contract were
provided; and that the rights of BIR and BOC employees to due process of law and security of tenure are duly
accorded by R.A. No. 9335. The OSG likewise maintains that there was no encroachment of judicial power in the
enactment of R.A. No. 9335 amounting to a bill of attainder since R.A. No. 9335 and its IRR merely defined the
offense and provided for the penalty that may be imposed. Finally, the OSG reiterates that the separation from the
service of any BIR or BOC employee under R.A. No. 9335 and its IRR shall be done only upon due consideration of
all relevant factors affecting the level of collection, subject to Civil Service laws, rules and regulations, and in
compliance with substantive and procedural due process. The OSG opines that the Performance Contract, far from
violating the BIR and BOC employees’ right to due process, actually serves as a notice of the revenue target they
have to meet and the possible consequences of failing to meet the same. More, there is nothing in the law which
prevents the aggrieved party from appealing the unfavorable decision of dismissal. 26
In essence, the issues for our resolution are:
1. Whether there is undue delegation of legislative power to the Board;
2. Whether R.A. No. 9335 and its IRR violate the rights of BOCEA’s members to: (a) equal protection of
laws, (b) security of tenure and (c) due process; and
3. Whether R.A. No. 9335 is a bill of attainder.
Our Ruling
Prefatorily, we note that it is clear, and in fact uncontroverted, that BOCEA has locus standi. BOCEA impugns the
constitutionality of R.A. No. 9335 and its IRR because its members, who are rank-and-file employees of the BOC,
are actually covered by the law and its IRR. BOCEA’s members have a personal and substantial interest in the
case, such that they have sustained or will sustain, direct injury as a result of the enforcement of R.A. No. 9335 and
its IRR.27
However, we find no merit in the petition and perforce dismiss the same.
It must be noted that this is not the first time the constitutionality of R.A. No. 9335 and its IRR are being challenged.
The Court already settled the majority of the same issues raised by BOCEA in our decision in Abakada, which
attained finality on September 17, 2008. As such, our ruling therein is worthy of reiteration in this case.
We resolve the first issue in the negative.
The principle of separation of powers ordains that each of the three great branches of government has exclusive
cognizance of and is supreme in matters falling within its own constitutionally allocated sphere. 28 Necessarily
imbedded in this doctrine is the principle of non-delegation of powers, as expressed in the Latin maxim potestas
delegata non delegari potest, which means "what has been delegated, cannot be delegated." This doctrine is based
on the ethical principle that such delegated power constitutes not only a right but a duty to be performed by the
delegate through the instrumentality of his own judgment and not through the intervening mind of
another.29However, this principle of non-delegation of powers admits of numerous exceptions,30 one of which is the
delegation of legislative power to various specialized administrative agencies like the Board in this case.
The rationale for the aforementioned exception was clearly explained in our ruling in Gerochi v. Department of
Energy,31 to wit:
In the face of the increasing complexity of modern life, delegation of legislative power to various specialized
administrative agencies is allowed as an exception to this principle. Given the volume and variety of interactions in
today’s society, it is doubtful if the legislature can promulgate laws that will deal adequately with and respond
promptly to the minutiae of everyday life. Hence, the need to delegate to administrative bodies — the principal
agencies tasked to execute laws in their specialized fields — the authority to promulgate rules and regulations to
implement a given statute and effectuate its policies. All that is required for the valid exercise of this power of
subordinate legislation is that the regulation be germane to the objects and purposes of the law and that the
regulation be not in contradiction to, but in conformity with, the standards prescribed by the law. These
requirements are denominated as the completeness test and the sufficient standard test. 32
Thus, in Abakada, we held,
Two tests determine the validity of delegation of legislative power: (1) the completeness test and (2) the sufficient
standard test. A law is complete when it sets forth therein the policy to be executed, carried out or implemented by
the delegate. It lays down a sufficient standard when it provides adequate guidelines or limitations in the law to map
out the boundaries of the delegate’s authority and prevent the delegation from running riot. To be sufficient, the
standard must specify the limits of the delegate’s authority, announce the legislative policy and identify the
conditions under which it is to be implemented.
RA [No.] 9335 adequately states the policy and standards to guide the President in fixing revenue targets and the
implementing agencies in carrying out the provisions of the law. Section 2 spells out the policy of the law:
"SEC. 2. Declaration of Policy. — It is the policy of the State to optimize the revenue-generation capability and
collection of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) by providing for a system of
rewards and sanctions through the creation of a Rewards and Incentives Fund and a Revenue Performance
Evaluation Board in the above agencies for the purpose of encouraging their officials and employees to exceed
their revenue targets."
Section 4 "canalized within banks that keep it from overflowing" the delegated power to the President to fix revenue
targets:
"SEC. 4. Rewards and Incentives Fund. — A Rewards and Incentives Fund, hereinafter referred to as the Fund, is
hereby created, to be sourced from the collection of the BIR and the BOC in excess of their respective revenue
targets of the year, as determined by the Development Budget and Coordinating Committee (DBCC), in the
following percentages:
Excess of Collection [Over] the Percent (%) of the Excess
Revenue Targets Collection to Accrue to the Fund
30% or below — 15%
More than 30% — 15% of the first 30% plus 20% of
the remaining excess
The Fund shall be deemed automatically appropriated the year immediately following the year when the revenue
collection target was exceeded and shall be released on the same fiscal year.
Revenue targets shall refer to the original estimated revenue collection expected of the BIR and the BOC for a
given fiscal year as stated in the Budget of Expenditures and Sources of Financing (BESF) submitted by the
President to Congress. The BIR and the BOC shall submit to the DBCC the distribution of the agencies’ revenue
targets as allocated among its revenue districts in the case of the BIR, and the collection districts in the case of the
BOC.
xxx xxx x x x"
Revenue targets are based on the original estimated revenue collection expected respectively of the BIR and the
BOC for a given fiscal year as approved by the DBCC and stated in the BESF submitted by the President to
Congress. Thus, the determination of revenue targets does not rest solely on the President as it also undergoes the
scrutiny of the DBCC.
On the other hand, Section 7 specifies the limits of the Board’s authority and identifies the conditions under which
officials and employees whose revenue collection falls short of the target by at least 7.5% may be removed from
the service:
"SEC. 7. Powers and Functions of the Board. — The Board in the agency shall have the following powers and
functions:
xxx xxx xxx
(b) To set the criteria and procedures for removing from service officials and employees whose revenue collection
falls short of the target by at least seven and a half percent (7.5%), with due consideration of all relevant factors
affecting the level of collection as provided in the rules and regulations promulgated under this Act, subject to civil
service laws, rules and regulations and compliance with substantive and procedural due process: Provided, That
the following exemptions shall apply:
1. Where the district or area of responsibility is newly-created, not exceeding two years in operation, and
has no historical record of collection performance that can be used as basis for evaluation; and
2. Where the revenue or customs official or employee is a recent transferee in the middle of the period
under consideration unless the transfer was due to nonperformance of revenue targets or potential
nonperformance of revenue targets: Provided, however, That when the district or area of responsibility
covered by revenue or customs officials or employees has suffered from economic difficulties brought
about by natural calamities or force majeure or economic causes as may be determined by the Board,
termination shall be considered only after careful and proper review by the Board.
(c) To terminate personnel in accordance with the criteria adopted in the preceding paragraph: Provided, That such
decision shall be immediately executory: Provided, further, That the application of the criteria for the separation of
an official or employee from service under this Act shall be without prejudice to the application of other relevant
laws on accountability of public officers and employees, such as the Code of Conduct and Ethical Standards of
Public Officers and Employees and the Anti-Graft and Corrupt Practices Act;
xxx xxx x x x"
At any rate, this Court has recognized the following as sufficient standards: "public interest", "justice and equity",
"public convenience and welfare" and "simplicity, economy and welfare". In this case, the declared policy of
optimization of the revenue-generation capability and collection of the BIR and the BOC is infused with public
interest.33
We could not but deduce that the completeness test and the sufficient standard test were fully satisfied by R.A. No.
9335, as evident from the aforementioned Sections 2, 4 and 7 thereof. Moreover, Section 5 34 of R.A. No. 9335 also
provides for the incentives due to District Collection Offices. While it is apparent that the last paragraph of Section 5
provides that "[t]he allocation, distribution and release of the district reward shall likewise be prescribed by the rules
and regulations of the Revenue Performance and Evaluation Board," Section 7 (a) 35 of R.A. No. 9335 clearly
mandates and sets the parameters for the Board by providing that such rules and guidelines for the allocation,
distribution and release of the fund shall be in accordance with Sections 4 and 5 of R.A. No. 9335. In sum, the
Court finds that R.A. No. 9335, read and appreciated in its entirety, is complete in all its essential terms and
conditions, and that it contains sufficient standards as to negate BOCEA’s supposition of undue delegation of
legislative power to the Board.
Similarly, we resolve the second issue in the negative.
Equal protection simply provides that all persons or things similarly situated should be treated in a similar manner,
both as to rights conferred and responsibilities imposed. The purpose of the equal protection clause is to secure
every person within a state’s jurisdiction against intentional and arbitrary discrimination, whether occasioned by the
express terms of a statute or by its improper execution through the state’s duly constituted authorities. In other
words, the concept of equal justice under the law requires the state to govern impartially, and it may not draw
distinctions between individuals solely on differences that are irrelevant to a legitimate governmental
objective.361awphil
Thus, on the issue on equal protection of the laws, we held in Abakada:
The equal protection clause recognizes a valid classification, that is, a classification that has a reasonable
foundation or rational basis and not arbitrary. With respect to RA [No.] 9335, its expressed public policy is the
optimization of the revenue-generation capability and collection of the BIR and the BOC. Since the subject of the
law is the revenue-generation capability and collection of the BIR and the BOC, the incentives and/or sanctions
provided in the law should logically pertain to the said agencies. Moreover, the law concerns only the BIR and the
BOC because they have the common distinct primary function of generating revenues for the national government
through the collection of taxes, customs duties, fees and charges.
The BIR performs the following functions:
"Sec. 18. The Bureau of Internal Revenue. — The Bureau of Internal Revenue, which shall be headed by and
subject to the supervision and control of the Commissioner of Internal Revenue, who shall be appointed by the
President upon the recommendation of the Secretary [of the DOF], shall have the following functions:
(1) Assess and collect all taxes, fees and charges and account for all revenues collected;
(2) Exercise duly delegated police powers for the proper performance of its functions and duties;
(3) Prevent and prosecute tax evasions and all other illegal economic activities;
(4) Exercise supervision and control over its constituent and subordinate units; and
(5) Perform such other functions as may be provided by law.
xxx xxx x x x"
On the other hand, the BOC has the following functions:
"Sec. 23. The Bureau of Customs. — The Bureau of Customs which shall be headed and subject to the
management and control of the Commissioner of Customs, who shall be appointed by the President upon the
recommendation of the Secretary [of the DOF] and hereinafter referred to as Commissioner, shall have the
following functions:
 (1) Collect custom duties, taxes and the corresponding fees, charges and penalties;
(2) Account for all customs revenues collected;
(3) Exercise police authority for the enforcement of tariff and customs laws;
(4) Prevent and suppress smuggling, pilferage and all other economic frauds within all ports of entry;
(5) Supervise and control exports, imports, foreign mails and the clearance of vessels and aircrafts in all
ports of entry;
(6) Administer all legal requirements that are appropriate;
(7) Prevent and prosecute smuggling and other illegal activities in all ports under its jurisdiction;
(8) Exercise supervision and control over its constituent units;
(9) Perform such other functions as may be provided by law.
xxx xxx x x x"
Both the BIR and the BOC are bureaus under the DOF. They principally perform the special function of being the
instrumentalities through which the State exercises one of its great inherent functions — taxation. Indubitably, such
substantial distinction is germane and intimately related to the purpose of the law. Hence, the classification and
treatment accorded to the BIR and the BOC under RA [No.] 9335 fully satisfy the demands of equal protection.37
As it was imperatively correlated to the issue on equal protection, the issues on the security of tenure of affected
BIR and BOC officials and employees and their entitlement to due process were also settled in Abakada:
Clearly, RA [No.] 9335 in no way violates the security of tenure of officials and employees of the BIR and the
BOC. The guarantee of security of tenure only means that an employee cannot be dismissed from the service for
causes other than those provided by law and only after due process is accorded the employee. In the case of RA
[No.] 9335, it lays down a reasonable yardstick for removal (when the revenue collection falls short of the target by
at least 7.5%) with due consideration of all relevant factors affecting the level of collection. This standard is
analogous to inefficiency and incompetence in the performance of official duties, a ground for disciplinary action
under civil service laws. The action for removal is also subject to civil service laws, rules and regulations and
compliance with substantive and procedural due process.38
In addition, the essence of due process is simply an opportunity to be heard, or as applied to administrative
proceedings, a fair and reasonable opportunity to explain one’s side. 39 BOCEA’s apprehension of deprivation of
due process finds its answer in Section 7 (b) and (c) of R.A. No. 9335. 40 The concerned BIR or BOC official or
employee is not simply given a target revenue collection and capriciously left without any quarter. R.A. No. 9335
and its IRR clearly give due consideration to all relevant factors 41 that may affect the level of collection. In the same
manner, exemptions42 were set, contravening BOCEA’s claim that its members may be removed for unattained
target collection even due to causes which are beyond their control. Moreover, an employee’s right to be heard is
not at all prevented and his right to appeal is not deprived of him. 43 In fine, a BIR or BOC official or employee in this
case cannot be arbitrarily removed from the service without according him his constitutional right to due process.
No less than R.A. No. 9335 in accordance with the 1987 Constitution guarantees this.
We have spoken, and these issues were finally laid to rest. Now, the Court proceeds to resolve the last, but new
issue raised by BOCEA, that is, whether R.A. No. 9335 is a bill of attainder proscribed under Section 22,44 Article III
of the 1987 Constitution.
On this score, we hold that R.A. No. 9335 is not a bill of attainder. A bill of attainder is a legislative act which inflicts
punishment on individuals or members of a particular group without a judicial trial. Essential to a bill of attainder are
a specification of certain individuals or a group of individuals, the imposition of a punishment, penal or otherwise,
and the lack of judicial trial.451avvphi1
In his Concurring Opinion in Tuason v. Register of Deeds, Caloocan City, 46 Justice Florentino P. Feliciano traces
the roots of a Bill of Attainder, to wit:
Bills of attainder are an ancient instrument of tyranny. In England a few centuries back, Parliament would at times
enact bills or statutes which declared certain persons attainted and their blood corrupted so that it lost all heritable
quality (Ex Parte Garland, 4 Wall. 333, 18 L.Ed. 366 [1867]). In more modern terms, a bill of attainder is essentially
a usurpation of judicial power by a legislative body. It envisages and effects the imposition of a penalty — the
deprivation of life or liberty or property — not by the ordinary processes of judicial trial, but by legislative fiat. While
cast in the form of special legislation, a bill of attainder (or bill of pains and penalties, if it prescribed a penalty other
than death) is in intent and effect a penal judgment visited upon an identified person or group of persons (and not
upon the general community) without a prior charge or demand, without notice and hearing, without an opportunity
to defend, without any of the civilized forms and safeguards of the judicial process as we know it (People v. Ferrer,
48 SCRA 382 [1972]; Cummings and Missouri, 4 Wall. 277, 18 L. Ed. 356 [1867]; U.S. v. Lovett, 328, U.S. 303, 90
L.Ed. 1252 [1945]; U.S. v. Brown, 381 U.S. 437, 14 L.Ed. 2d. 484 [1965]. Such is the archetypal bill of attainder
wielded as a means of legislative oppression. x x x47
R.A. No. 9335 does not possess the elements of a bill of attainder. It does not seek to inflict punishment without a
judicial trial. R.A. No. 9335 merely lays down the grounds for the termination of a BIR or BOC official or employee
and provides for the consequences thereof. The democratic processes are still followed and the constitutional rights
of the concerned employee are amply protected.
A final note.
We find that BOCEA’s petition is replete with allegations of defects and anomalies in allocation, distribution and
receipt of rewards. While BOCEA intimates that it intends to curb graft and corruption in the BOC in particular and
in the government in general which is nothing but noble, these intentions do not actually pertain to the
constitutionality of R.A. No. 9335 and its IRR, but rather in the faithful implementation thereof. R.A. No. 9335 itself
does not tolerate these pernicious acts of graft and corruption.48 As the Court is not a trier of facts, the investigation
on the veracity of, and the proper action on these anomalies are in the hands of the Executive branch.
Correlatively, the wisdom for the enactment of this law remains within the domain of the Legislative branch. We
merely interpret the law as it is. The Court has no discretion to give statutes a meaning detached from the manifest
intendment and language thereof.49 Just like any other law, R.A. No. 9335 has in its favor the presumption of
constitutionality, and to justify its nullification, there must be a clear and unequivocal breach of the Constitution and
not one that is doubtful, speculative, or argumentative.50 We have so declared in Abakada, and we now reiterate
that R.A. No. 9335 and its IRR are constitutional.
WHEREFORE, the present petition for certiorari and prohibition with prayer for injunctive relief/s is DISMISSED.
No costs.
SO ORDERED.

SECURITIES and EXCHANGE COMMISSION vs. UNIVERSAL RIGHTFIELD PROPERTY HOLDINGS, INC.
G.R. No. 181381 July 20, 2015
DECISION
Before the Court is a petition for review under Rule 45 of the Rules of Court, which seeks to reverse and set aside
the Decision1 dated January 21, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 93337, the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing, the petition is GRANTED. The assailed Resolution, dated December 15,
2005, of the Securities and Exchange Commission, as well as its Order of Revocation dated December 8, 2004,
are hereby SET ASIDE.
SO ORDERED.2
The facts are as follows:
Respondent Universal Rightfield Property Holdings, Inc. (URPHI) is a corporation duly registered and existing
under the Philippine Laws, and is engaged in the business of providing residential and leisure-related needs and
wants of the middle and upper middle-income market.
On May 29, 2003, petitioner Securities and Exchange Commission (SEC), through its Corporate Finance
Department, issued an Order revoking URPHI's Registration of Securities and Permit to Sell Securities to the Public
for its failure to timely file its Year 2001 Annual Report and Year 2002 1st, 2nd and 3rd Quarterly Reports pursuant
to Section 173 of the Securities Regulation Code (SRC), Republic Act No. 8799.
On October 16, 2003, URPHI filed with the SEC a Manifestation/Urgent Motion to Set Aside Revocation Order and
Reinstate Registration after complying with its reportorial requirements.
On October 24, 2003, the SEC granted URPHI's motion to lift the revocation order, considering the current
economic situation, URPHI's belated filing of the required annual and quarterly reports, and its payment of the
reduced fine of ₱82,000.00.
Thereafter, URPHI failed again to comply with the same reportorial requirements.
In a Notice of Hearing dated June 25, 2004, the SEC directed URPHI to show cause why its Registration of
Securities and Certificate of Permit to Sell Securities to the Public should not be suspended for failure to submit the
said requirements. Pertinent portion of the notice reads: Records show that the corporation has failed to submit the
following reports in violation of SRC Rule 17.1:
(1) 2003 Annual Report (SEC Form 17-A); and
(2) 2004 1st Quarter Report (SEC Form 17-Q)
The company has been allowed a non-extendible period until May 31, 2004 within which to file its 2003 Annual
Report but to date the said report has not been submitted.
In view of the foregoing and considering the inadequate information available to the public, the corporation is
hereby directed to show cause why the Registration of its Securities and Certificate of Permit to Sell Securities
should not be suspended, in a hearing scheduled before Atty. Francia A. Tiuseco-Manlapaz on July 6, 2004, at the
Securities Registration Division, Corporation Finance Department of the Commission, 6th Floor, SEC Building,
EDA, Greenhills, Mandaluyong, Metro Manila at 10:00 o'clock in the morning. Failure of the company to appear,
through its representative, at the said hearing shall be deemed a waiver on its part to be heard with regard to the
suspension of its Certificate of Permit to Sell Securities to the Public.
SO ORDERED.4
During the scheduled hearing on July 6, 2004, URPHI, through its Chief Accountant, Rhodora Lahaylahay,
informed the SEC why it failed to submit the reportorial requirements, viz.: (1) it was constrained to reduce its
accounting staff due to cost-cutting measures; thus, some of the audit requirements were not completed within the
original timetable; and (2) its audited financial statements for the period ending December 31, 2003 could not be
finalized by reason of the delay in the completion of some of its audit requirements.
In an Order dated July 27, 2004, the SEC suspended URPHI's Registration of Securities and Permit to Sell
Securities to the Public for failure to submit its reportorial requirements despite the lapse of the extension period,
and due to lack of sufficient justification for its inability to comply with the said requirements.
On August 23, 2004, the SEC, through its Corporation Finance Department, informed URPHI that it failed to submit
its 2004 2nd Quarter Report (SEC Form 17-Q) in violation of the Amended Implementing Rules and Regulations of
the SRC Rule 17 .1(1)(A)(ii).5 It also directed URPHI to file the said report, and to show cause why it should not be
held liable for violation of the said rule.
In a letter dated September 28, 2004, URPHI requested for a final extension, or until November 15, 2004, within
which to submit its reportorial requirements. Pertinent portions of the letter read:
We refer to your Order dated 27 July 2004, wherein the Commission resolved to SUSPEND the Corporation's
Registration of Securities and Permit to Sell Securities to the Public due to non-filing of the Corporation's reportorial
requirements under SRC Rule 17 effective for sixty (60) days or until the reporting requirements are complied
[with]; otherwise, the Commission shall proceed with the revocation of the Corporation's registration [of] securities.
To date, the Corporation has not filed with the Commission its 2003 Annual Report in SEC Form 17-A and 2004 1st
and 2°d Quarterly reports in SEC Form 17-Q. The non-submission of these reportorial requirements, as we have
already disclosed to you per our letter dated 13 September 2004, was due to the non-finalization of the
Corporation's audited financial statement for the fiscal year ended December 31, 2003.
During our meeting with our external auditor, SGV & Co. last 8 September 2004, SGV agreed to facilitate the
finalization of our financial statements within two (2) weeks. Notwithstanding the same, the Corporation foresees
the impossibility of complying with its submission until the end of the month, as the partners of SGV are still
reviewing the final draft of the financial statements. The Corporation intends to comply with its reportorial
requirements. However, due to the foregoing circumstances, the finalization of our financial statement has again
been delayed. In this regard, may we request for the last time until November 15, 2004 within which to submit said
reportorial requirements.6
On December 1, 2004, URPHI filed with the SEC its 2003 Annual Report.
In an Order of Revocation7 dated December 8, 2004, the SEC revoked URPHI's Registration of Securities and
Permit to Sell Securities to the Public for its failure to submit its reportorial requirements within the final extension
period.
On December 9, 10, and 14, 2004, URPHI finally submitted to the SEC its 1st Quarterly Report for 2004, 2nd
Quarterly Report for 2004, and 3rd Quarterly Report for 2004, respectively. Meantime, URPHI appealed the SEC
Order of Revocation dated December 8, 2004 by filing a Notice of Appeal and a Memorandum both dated January
3, 2005.
In a Resolution dated December 15, 2005, the SEC denied URPHI's appeal, thus: WHEREFORE, premises
considered, the Memorandum dated 03 January 2005 of Universal Rightfield Property Holdings, Inc. praying for the
reversal of the Order of Revocation dated 08 December 2004 is DENIED for lack of merit.
SO ORDERED.8
Aggrieved, URPHI filed a petition for review with the CA.
In a Decision dated January 21, 2008, the CA granted the petition and set aside the SEC Order of Revocation after
finding that URPHI was not afforded due process because no due notice was given and no hearing was conducted
before its registration of securities and permit to sell them to the public was revoked. The CA noted that the hearing
conducted on July 6, 2004 was only for the purpose of determining whether URPHI's registration and permit to sell
should be suspended and not whether said registration should be revoked.
The CA ruled that based on how Sections 5.1 (m)9 and 13.110 of the SRC are worded, suspension and revocation
of URPHI's registration of securities each requires separate notices and hearings. It also held that the Ruling11 in
Globe Telecom, Inc. v. The National Telecommunications Commission12 (Globe Telecom, Inc.) applies squarely to
this case since the Section 13.1 of the SRC itself provides that due notice and hearing are required before
revocation may be ordered by the SEC. In view of such specific mandate of the SRC in cases of revocation, the CA
rejected the SEC's argument that the hearing conducted for the suspension of URPHI's registration can already be
considered as the hearing for revocation.
The CA also held that the SEC cannot brush aside the specific mandate of Section 13 .1 of the SRC by merely
invoking the doctrine that administrative due process is satisfied when the party is given the opportunity to explain
one's side or the opportunity to seek a reconsideration of the action or ruling taken. Citing Globe Telecom, Inc.13 the
CA explained that while such doctrine remains valid and has been applied in numerous instances, it must give way
in instances when the statute itself, such as Section 13 .1, demands prior notice and hearing. It added that the
imperativeness for a hearing in cases of revocation of registration of securities assumes greater significance,
considering that revocation is a measure punitive in character undertaken by an administrative agency in the
exercise of its quasi-judicial functions. Dissatisfied with the CA Decision, the SEC filed the instant petition for review
on certiorari, raising the sole issue that:
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE WHICH IS NOT IN ACCORD WITH THE
LAW AND PREVAILING JURISPRUDENCE.14
On the one hand, the SEC contends that URPHI was accorded all the opportunity to be heard and comply with all
the reportorial requirements before the Order of Revocation was issued. Specifically, in the Order dated July 27,
2004 suspending URPHI's registration of securities for 60 days, the SEC expressly warned that such registration
would be revoked should it persistently fail to comply with the said requirements. Still, URPHI continuously failed to
submit the required reports. On August 23, 2004, the SEC directed again URPHI to submit the required report and
to show cause why it should not be held liable for violation of the law. Instead of submitting the required reports,
URPHI requested for a final extension, or until November 15, 2004, within which to comply with its reportorial
requirements. For URPHI's failure to submit the said reports, the SEC issued the Order of Revocation dated
December 8, 2004. URPHI immediately filed a motion for reconsideration thereof through a Notice of Appeal and a
Memorandum both dated January 3, 2005, which the SEC later denied in the Resolution dated December 15, 2005.
Hence, URPHI was amply accorded its guaranteed right to due process.
The SEC also submits that the factual milieu of Globe Telecom, Inc.15 cited by the CA in its Decision is starkly
different from this case. Unlike in the former case where the Court ruled that the fine imposed by the National
Telecommunications Commission without notice and hearing, was null and void due to the denial of petitioner's
right to due process, the SEC points out that URPHI was duly notified of its violations and the corresponding
penalty that may be imposed should it fail to submit the required reports, and was given more than enough time to
comply before the Order of Revocation was issued. The SEC adds that a hearing was conducted on July 6, 2004
as to URPHI's repeated failure to submit the reportorial requirements as mandated by the SRC and its
implementing rules and regulations, which was the basis in issuing the said Order.
On the other hand, URPHI insists that the CA was correct in ruling that the SRC requires separate notices and
hearings for revocation and suspension of registration of securities and permit to sell them to the public. It then
asserts that the warning contained in the SEC's suspension Order dated July 27, 2004 does not meet the
requirement of notice under the SRC. It stresses that while the SEC issued a separate notice of hearing for such
suspension, no similar notice was issued as regards such revocation. It also notes that the July 6, 2004 hearing
was with regard to the suspension of its registration of securities, and that no hearing was ever conducted for
purposes of revocation of such registration.
On the SEC's claim that URPHI was afforded due process because it was already given the opportunity to seek a
reconsideration of the Order of Revocation by filing its Notice of Appeal and Memorandum, URPHI argues that the
filing of such appeal did not cure the violation of its right to due process. In support of its argument, URPHI cites the
Globe Telecom, Inc.16 ruling that notice and hearing are indispensable when an administrative agency exercises
quasi-judicial functions and that such requirements become even more imperative if the statute itself demands it.
URPHI further cites the ruling17 in BLTB, Co. v. Cadiao, et al.,18 to support its view that a motion for reconsideration
is curative of a defect in procedural due process only if a party is given sufficient opportunity to explain his side of
the controversy. It claims that the controversy referred to is the underlying substantive controversy of which the
procedural due process controversy is but an offshoot. Noting that the only issue raised in its appeal was
procedural, i.e., whether it was denied prior notice and hearing under the SRC, URPHI contends that it cannot be
said that by appealing to the SEC, it had the opportunity to explain its side on substantive controversy which
pertains to its alleged violation of the SRC and failure to comply with the reportorial requirements that prompted the
SEC to issue the Order of Revocation. Hence, such appeal cannot be considered curative of the defect in
procedural due process which attended the issuance of the said Order.
URPHI further submits that the prior revocation of its registration on May 29, 2003 did not cure the lack of due
process which attended the revocation of its registration on December 8, 2004. Since the SEC deemed it proper to
lift the prior revocation, such can no longer be used to sustain another revocation order, much less one issued
without prior notice and hearing. Granted that it was accorded due process, URPHI asserts that the revocation of its
registration of securities and permit to sell them to the public is inequitable under the circumstances. It calls
attention to the severe and certain consequences of such revocation, i.e., termination of the public offering of its
securities, return of payments received from purchasers thereof, and its delisting from the PSE, which will cause
financial ruin and jeopardize its efforts to recover from its current financial distress. Claiming that it exerted best
effort and exercised good faith in complying with the reportorial requirements, URPHI avers that the interest of the
investing public will be better served if, instead of revoking its registration of securities, the SEC will merely impose
penalties and allow it to continue as a going concern in the hope that it may later return to profitability.
The petition is meritorious.
There is no dispute that violation of the reportorial requirements under Section 17.1 19 of the Amended Implementing
Rules and Regulation20 of the SRC is a ground for suspension or revocation of registration of securities pursuant to
Sections 13.1 and 54.1 of the SRC. However, contrary to the CA ruling that separate notices and hearings for
suspension and revocation of registration of securities and permit to sell them to the public are required, Sections
13 .1 and 54.1 of the SRC expressly provide that the SEC may suspend or revoke such registration only after due
notice and hearing, to wit:
13.1. The Commission may reject a registration statement and refuse registration of the security thereunder, or
revoke the effectivity of a registration statement and the registration of the security thereunder after due notice and
hearing by issuing an order to such effect, setting forth its findings in respect thereto, if it finds that:
a) The issuer:
xxxx
(ii) Has violated any of the provisions of this Code, the rules promulgated pursuant thereto, or any order of the
Commission of which the issuer has notice in connection with the offering for which a registration statement has
been filed;21
xxxx
54.1. If, after due notice and hearing, the Commission finds that: (a) There is a violation of this Code, its rules, or its
orders; (b) Any registered broker or dealer, associated person thereof has failed reasonably to supervise, with a
view to preventing violations, another person subject to supervision who commits any such violation; ( c) Any
registrant or other person has, in a registration statement or in other reports, applications, accounts, records or
documents required by law or rules to be filed with the Commission, made any untrue statement of a material fact,
or omitted to state any material fact required to be stated therein or necessary to make the statements therein not
misleading; or, in the case of an underwriter, has failed to conduct an inquiry with reasonable diligence to insure
that a registration statement is accurate and complete in all material respects; or ( d) Any person has refused to
permit any lawful examinations into its affairs, it shall, in its discretion, and subject only to the limitations hereinafter
prescribed, impose any or all of the following sanctions as may be appropriate in light of the facts and
circumstances:
(i) Suspension, or revocation of any registration for the offering of securities; 22
The Court has consistently held that the essence of due process is simply an opportunity to be heard, or as applied
to administrative proceedings, an opportunity to explain one's side or an opportunity to seek a reconsideration of
the action or ruling complained of.23 Any seeming defect in its observance is cured by the filing of a motion for
reconsideration, and denial of due process cannot be successfully invoked by a party who has had the opportunity
to be heard on such motion.24 What the law prohibits is not the absence of previous notice, but the absolute
absence thereof and the lack of opportunity to be heard.25
In the present case, due notice of revocation was given to URPHI through the SEC Order dated July 27, 2004
which reads:
Considering that the company is under rehabilitation, the request was granted and it was given a non-extendible
period until May 31, 2004 within which to comply.
Despite the extension[,] however, it failed to submit said reports. Hence, a hearing was held on July 6, 2004
wherein the company's representative, its Chief Accountant and a Researcher appeared. No sufficient reason or
justification for the company's inability to comply with its reporting obligation was presented.
In view thereof, the Commission[,] in its meeting held on July 22, 2004, resolved to SUSPEND the Registration of
Securities and Permit to Sell Securities to the Public issued to UNIVERSAL RIGHTFIELD PROPERTY HOLDINGS,
INC., in accordance with Section 54 of the Securities Regulation Code.
This said Suspension shall be effective for sixty (60) days or until the reporting requirements are complied [with,]
otherwise the Commission shall proceed with the revocation of the company's registration of securities.
Let this Order be published in a newspaper of general circulation in the Philippines or on the Commission's web
page.
SO ORDERED.26
Contrary to the view that a separate notice of hearing to revoke is necessary to initiate the revocation proceeding,
the Court holds that such notice would be a superfluity since the Order dated July 27, 2004 already states that such
proceeding shall ensue if URPHI would still fail to submit the reportorial requirements after the lapse of the 60-day
suspension period. After all, "due notice" simply means the information that must be given or made to a particular
person or to the public within a legally mandated period of time so that its recipient will have the opportunity to
respond to a situation or to allegations that affect the individual's or public's legal rights or duties. 27
Granted that no formal hearing was held before the issuance of the Order of Revocation, the Court finds that there
was substantial compliance with the requirements of due process when URPHI was given opportunity to be heard.
Upon receipt of the SEC Order dated July 27, 2004, URPHI filed the letters dated September 13 and 28, 2004,
seeking a final extension to submit the reportorial requirements, and admitting that its failure to submit its 2nd
Quarterly Report for 2004 was due to the same reasons that it was unable to submit its 2003 Annual Report and 1st
Quarterly Report for 2004. Notably, in its Order of Revocation, the SEC considered URPHI's letters and stated that
it still failed to submit the required reports, despite the lapse of the final extension requested.
In A.Z. Arnaiz, Realty, Inc. v. Office of the President,28 the Court held that due process, as a constitutional precept,
does not always, and in all situations, require a trial-type proceeding. Litigants may be heard through pleadings,
written explanations, position papers, memoranda or oral arguments. The standard of due process that must be
met in administrative tribunals allows a certain degree of latitude as long as fairness is not ignored. It is, therefore,
not legally objectionable for being violative of due process for an administrative agency to resolve a case based
solely on position papers, affidavits or documentary evidence submitted by the parties. Guided by the foregoing
principle, the Court rules that URPHI was afforded opportunity to be heard when the SEC took into account in its
Order of Revocation URPHI's September 13 and 28, 2004 letters, explaining its failure to submit the reportorial
requirements, as well as its request for final extension within which to comply. Pertinent portions of the said Order
read:
The Commission in its meeting held on July 22, 2004 resolved to suspend its Registration of Securities and Permit
to Sell Securities to the Public. The Order of Suspension stated that it was to be effective for sixty (60) days or until
the reporting requirements were complied with by the company; otherwise, the Commission shall proceed with the
revocation of the company's registration of securities.
The sixty (60)-day period had elapsed on September 25, 2004 but the Commission received a letter on September
29, 2004 from the President of the company, Mr. Jose L. Merin. In the said letter, it was admitted that the
corporation had failed to submit its 2003 Annual Report (SEC Form 17-A) and its 2004 1st and 2nd Quarterly
Reports (SEC Form 17-Q) but explained that the reason for its inability to submit said reports was due to the non-
finalization of the company's audited financial statements for the fiscal year ended December 31, 2003. It further
stated that during its meeting with its external auditor, SGV & Co., last September 8, 2004, SGV agreed to facilitate
the finalization of its financial statements within two (2) weeks. The corporation foresaw the impossibility of
complying with its submission until the end of the month as the partners of SGV were still reviewing the final draft of
the financial statements, thus, the request for extension FOR THE LAST TIME until November 15, 2004 within
which to comply.
SEC Form 17-A (for 2003) was finally submitted on December 1, 2004.
IN VIEW THEREOF, the Commission, in its meeting held on December 2, 2004, resolved to REVOKE the
Registration of Securities and Permit to Sell Securities to the Public issued to UNIVERSAL RIGHTFIELD
PROPERTY HOLDINGS, INC.29
Aside from having been given the opportunity to be heard before the SEC issued the Order of Revocation, URPHI
was likewise able to seek reconsideration of such action complained of. After the issuance of the said Order,
URPHI filed a Notice of Appeal and a Memorandum, asserting that it was issued without due notice and hearing,
and that the revocation is inequitable under the circumstances. In the Resolution dated December 15, 2004, the
SEC denied URPHI's appeal in this wise:
In the instant case, URPHI was accorded due process when its Chief Financial Officer gave its side on the imputed
violation and informed the Commission that it will not be able to submit its Annual Report (SEC Form 17-A) for the
fiscal year ending on 31 December 2003 and requested for additional time to comply with the said requirements.
The Commission granted URPHI a non-extendible period of forty-seven (47) calendar days or until 15 November
2004 within which to comply.
In spite of the extension of time given, URPHI still failed to submit the said reports. During the 06 July 2004 hearing
where the Chief Accountant and researcher of URPHI were present, both failed to present sufficient justifications
for URPHI's inability to comply with its reporting obligations.
It is also noteworthy to mention that URPHI's Registration of Securities and Permit to Sell Securities to the Public
had been revoked on several occasions on account of the same deficiency. URPHI is aware of the SRC Rules and
must suffer the consequences of its reported violations.30
Verily, URPHI was given the opportunity to be heard before the Order of Revocation was issued, as well as the
opportunity to seek the reconsideration of such order.
Meanwhile, the Court disagrees with URPHI's claim that the Globe Telecom, Inc.31 ruling - that notice and hearing
are indispensable when an administrative agency exercises quasi-judicial functions and that such requirements
become even more imperative if the statute itself demands it -is applicable to the present case.
In Gamboa v. Finance Secretary,32 the Court has held that the SEC has both regulatory and adjudicative functions,
thus:
Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or revoke (after due
notice and hearing), certificates of registration of corporations, partnerships and associations (excluding
cooperatives, homeowners associations, and labor unions); compel legal and regulatory compliances; conduct
inspections; and impose fines or other penalties for violations of the Revised Securities Act, as well as
implementing rules and directives of the SEC, such as may be warranted.
Relative to its adjudicative authority, the SEC has original and exclusive jurisdiction to hear and decide
controversies and cases involving
–
a. Intra-corporate and partnership relations between or among the corporation, officers and stockholders
and partners, including their elections or appointments;
b. State and corporate affairs in relation to the legal existence of corporations, partnerships and
associations or to their franchises; and
c. Investors and corporate affairs particularly in respect of devices and schemes, such as fraudulent
practices, employed by directors, officers, business associates, and/or other stockholders, partners, or
members of registered firms; x x x
As can be gleaned from the aforequoted ruling, the revocation of registration of securities and permit to sell them to
the public is not an exercise of the SEC's quasi-judicial power, but of its regulatory power. A "quasi-judicial function"
is a term which applies to the action, discretion, etc., of public administrative officers or bodies, who are required to
investigate facts, or ascertain the existence of facts, hold hearings, and draw conclusions from them, as a basis for
their official action and to exercise discretion of a judicial nature.33 Although Section 13.1 of the SRC requires due
notice and hearing before issuing an order of revocation, the SEC does not perform such quasi-judicial functions
and exercise discretion of a judicial nature in the exercise of such regulatory power. It neither settles actual
controversies involving rights which are legally demandable and enforceable, nor adjudicates private rights and
obligations in cases of adversarial nature. Rather, when the SEC exercises its incidental power to conduct
administrative hearings and make decisions, it does so in the course of the performance of its regulatory and law
enforcement function.
Significantly, unlike in Globe Telecom, Inc.34 where the Court ruled that the fine imposed by the NTC without notice
and hearing, was null and void due to the denial of petitioner's right to due process, the revocation of URPHI's
registration of securities and permit to sell them to the public cannot be considered a penalty but a withdrawal of a
privilege, which regulatory power the SEC validly exercised after giving it due notice and opportunity to be heard.
While URPHI correctly relied in BLTB Co., Inc. v. Cadiao35 to support its view that a motion for reconsideration is
curative of a defect in procedural due process only if a party is given sufficient opportunity to explain his side of the
controversy, the Court rejects URPHI's claim that it did not have the opportunity to explain the substantive
controversy of its violation of the SRC reportorial requirements.36 Contrary to the claim that only the issue of
procedural due process was raised in its appeal with the SEC, URPHI also raised in its Memorandum dated
January 3, 2005 the reasons why it failed to comply with the said requirements, and why revocation is inequitable
under the circumstances.37
For the late filing of annual report and quarterly report, SEC Memorandum Circular No. 6, Series of 2005, the
Consolidated Scale of Fines in effect at the time the offenses were committed, provides for the following
administrative penalties:

SRC/IRR Description First Offense Second Offense Third Offense

Provisions

Section Late Filing of Quarterly Reprimand/Warning ₱50,000.00 plus ₱60,000.00 plus

17.1; Report (SEC Form 17- ₱300.00 per day of ₱600.00 per day of
SRC Rule Q) delay delay
17.1
Late Filing of Annual Reprimand/Warning ₱100,000.00 plus ₱200,000.00 plus
Report (SEC Form 17- ₱500.00 per day of ₱1000.00 per day of
A) delay delay

It bears emphasis that URPHI had committed several offenses for failure to comply with the reportorial
requirements for which it was fined and its registration of securities revoked. On May 29, 2003, the SEC issued an
Order revoking URPHI's Registration of Securities and Permit to Sell Securities to the Public for its failure to timely
file its Year 2001 Annual Report and Year 2002 1st, 2nd and 3rd Quarterly Reports. Then, on October 24, 2003, the
SEC granted URPHI's petition to lift the revocation, considering the current economic situation, its belated filing of
the required annual and quarterly reports, and its payment of the reduced fine of ₱82,000.00. Despite the
foregoing, URPHI failed again to submit its 2003 Annual Report, and Year 2004 1st, 2nd and 3rd Quarterly Reports
within the requested extension periods.
Therefore, notwithstanding the belated filing of the said reports, as well as the claim that public interest would be
better served if the SEC will merely impose penalties and allow it to continue in order to become profitable again,
the SEC cannot be faulted for revoking once again URPHI's registration of securities and permit to sell them to the
public due to its repeated failure to timely submit such reports. Needless to state, such continuing reportorial
requirements are pursuant to the state policies declared in Section 2 38 of the SRC of protecting investors and
ensuring full and fair disclosure of information about securities and their issuer.
All told, the CA erred in ruling that the SEC revoked URPHI's registration of securities and permit to sell them to the
public without due process of law.1âwphi1 Quite the contrary, the requirements of due notice and hearing under
Sections 13 .1 and 54.1 of the SRC were substantially complied with. Due notice was made through the Order
dated July 27, 2004 stating that revocation proceeding shall ensue if URPHI would still fail to submit the reportorial
requirements after the lapse of the 60-day suspension period. Though no formal hearing was held, URPHI was still
given an opportunity to be heard through the letters dated September 13 and 18, 2004 before the Order of
Revocation was issued, as well as through its Notice of Appeal and Memorandum when it moved to reconsider the
said order.
WHEREFORE, the petition is GRANTED and the Decision dated January 21, 2008 of the Court of Appeals in CA-
G.R. SP No. 93337, is REVERSED and SET ASIDE. In lieu thereof, the Resolution dated December 15, 2005 of
the Securities and Exchange Commission and its Order of Revocation dated December 8, 2004 are REINSTATED.
SO ORDERED.

PAGCOR vs. FONTANA DEVELOPMENT CORPORATION

G.R. No. 187972 June 29, 2010

DECISION
In this petition for review under Rule 45, the May 19, 2009 Decision of the Court of Appeals (CA) in CA-G.R. SP
No. 107247 is questioned for not nullifying the November 18, 2008 Order of the Regional Trial Court (RTC) in
Manila in Civil Case No. 08-120338 that issued a temporary restraining order (TRO) against petitioner Philippine
Amusement and Gaming Corporation (PAGCOR), barring PAGCOR from committing acts that allegedly violate the
rights of respondent Fontana Development Corporation (FDC) under a December 23, 1999 Memorandum of
Agreement (MOA).
The antecedents as culled by the CA from the records are:
Petitioner Philippine Amusement and Gaming Corporation (PAGCOR) is a government owned and controlled
corporation created under Presidential Decree (PD) No. 1869 to enable the Government to regulate and centralize
all games of chance authorized by existing franchise or permitted by law. Section 10 thereof conferred on PAGCOR
a franchise of twenty-five (25) years or until July 11, 2008, renewable for another twenty-five (25) years. Under
Section 9 thereof, it was given regulatory powers over persons and/or entities with contract or franchise with it, viz:
SECTION 9. Regulatory Power.—The Corporation shall maintain a Registry of the affiliated entities, and shall
exercise all the powers, authority and the responsibilities vested in the Securities and Exchange Commission over
such affiliated entities mentioned under the preceding section, including but not limited to amendments of Articles of
Incorporation and By-Laws, changes in corporate term, structure, capitalization and other matters concerning the
operation of the affiliating entities, the provisions of the Corporation Code of the Philippines to the contrary
notwithstanding, except only with respect to original incorporation.
On March 13, 1992, Republic Act No. 7227 was enacted to provide for the conversion and development of existing
military reservations, including former United States military bases in the Philippines, into Special Economic Zones
(SEZ). The law also provides for the creation of the Subic Bay Metropolitan Authority (SBMA).
On April 3, 1993, then President Fidel V. Ramos issued Executive Order (EO) No. 80. Under Section 5 thereof, the
Clark Special Economic Zone (CSEZ) was given all the applicable incentives granted to Subic Bay Special
Economic Zone (SSEZ), viz:
SECTION 5. Investments Climate in the CSEZ.—Pursuant to Section 5(m) and Section 15 of RA 7227, the BCDA
shall promulgate all necessary policies, rules and regulations governing the CSEZ, including investment incentives,
in consultation with the local government units and pertinent government departments for implementation by the
CDC.
Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone
under RA 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investments
Code of 1987, the Foreign Investments Act of 1991 and new investments laws which may hereinafter be enacted.
The CSEZ Main Zone covering the Clark Air Base proper shall have all the aforecited investment incentives, while
the CSEZ Sub-Zone covering the rest of the CSEZ shall have limited incentives. The full incentives in the Clark
SEZ Main Zone and the limited incentives in the Clark SEZ Sub-Zone shall be determined by the BCDA.
On December 23, 1999, PAGCOR granted private respondent Fontana Development Corporation (FDC) (formerly
RN Development Corporation) the authority to operate and maintain a casino inside the CSEZ under a
Memorandum of Agreement (MOA), stating inter alia:
xxxx
1. RNDC Improvements
xxxx
4. Non-exclusivity, PAGCOR and RNDC agree that the license granted to RNDC to engage in gaming and
amusement operations within CSEZ shall be non-exclusive and co-terminus with the Charter of PAGCOR, or any
extension thereof, and shall be for the period hereinabove defined. (Emphasis supplied.)
xxxx
On April 12, 2000, Clark Development Corporation (CDC) issued Certificate of Registration No. 2000-24. Pursuant
to Article VII-11 thereof, the MOA was amended on July 28, 2000, September 6, 2000, December 6, 2001, June 3,
2002, October 13, 2003 and March 31, 2004.
Sometime in 2005, the Coconut Oil Refiners Association challenged before the Supreme Court the constitutionality,
among others, of EO No. 80 on the ground that the incentives granted to SSEZ under RA No. 7227 was exclusive
and cannot be made applicable to CSEZ by a mere executive order. The case was decided in favor of Coconut Oil
Refiners Association and Section 5 aforequoted was declared of no legal force and effect.
On June 20, 2007, RA No. 9487 was enacted, extending PAGCOR’s franchise up to July 10, 2033 renewable for
another twenty-five (25) years, viz:
SECTION 1. The Philippine Amusement and Gaming Corporation (PAGCOR) franchise granted under Presidential
Decree No. 1869, otherwise known as the PAGCOR Charter, is hereby further amended to read as follows:
(1) Section 10, Nature and Term of Franchise, is hereby amended to read as follows:
SEC. 10. Nature and Term of Franchise.—Subject to the terms and conditions established in this Decree, the
Corporation is hereby granted from the expiration of its original term on July 11, 2008, another period of twenty-five
(25) years, the rights, privileges and authority to operate and license gambling casinos, gaming clubs and other
similar recreation or amusement places, gaming pools, i.e., basketball, football, bingo, etc. except jai-alai, whether
on land or sea, within the territorial jurisdiction of the Republic of the Philippines: Provided, That the corporation
shall obtain the consent of the local government unit that has territorial jurisdiction over the area chosen as the site
for any of its operations.
xxxx
On July 18, 2008, PAGCOR informed FDC that it was extending the MOA on a month-to-month basis until the
finalization of the renewal of the contract. FDC protested, claiming that the extension of PAGCOR’s franchise had
automatically extended the MOA: that the SC decisions, including RA Nos. 9400 and 9399, had no effect on the
authority of CDC to allow the establishment of a casino inside the CSEZ; and that in Coconut Oil Refiners
Association, Inc., the SC did not declare void the entire EO No. 80 but only Section 5 thereof.
On October 6, 2008, after a series of dialogues and exchange of position papers, PAGCOR notified FDC that its
[new] standard Authority to Operate shall now govern and regulate FDC’s casino operations in place of the
previous MOA. FDC moved for the reconsideration of the said decision but the same was denied. On November 5,
2008, PAGCOR instructed FDC to remit its franchise fees in accordance with the Authority to Operate.
On the same date of November 5, 2008, FDC filed before the RTC of Manila the instant complaint for Injunction
against PAGCOR, contending that it could not be covered by a month-to-month extension nor by the standard
Authority to Operate since the MOA was automatically renewed and extended up to 2033; that the MOA clearly
provided that the same was co-terminus with PAGCOR’s franchise including any extension thereof; that it had
faithfully complied with the conditions under the MOA; that pursuant to the MOA, it had built a hotel-casino complex
and put up other investments equivalent to P1 Billion; that it had adopted a marketing strategy to attract high roller
casino players from Asia and had scrupulously met all its obligations to PAGCOR and other government agencies;
and that the provisions invalidated in Coconut Oil Refiners Association, Inc., principally pertained to tax and
customs duty, privileges or incentives which was thereafter restored by the enactment of RA No. 9400. The
complaint was docketed as the herein Civil Case No. 08-120338 and raffled to Branch 7.
The RTC summoned PAGCOR and set the hearing on the application for TRO. On November 13, 2008, PAGCOR
filed its Special Appearance (for Dismissal of the Petition and the Opposition to the Prayer for a Temporary
Restraining Order and/or Writ of Preliminary Injunction), praying that the complaint be dismissed for lack of
jurisdiction. PAGCOR contended that its decision to replace the MOA with the Authority to Operate was pursuant to
its regulatory powers under Sections 8 and 9 of PD No. 1869; that under the said provisions, it was given all the
powers, authority and responsibilities of the Securities and Exchange Commission (SEC) over corporations
engaged in gambling; that consequently, being the SEC of said corporations, the appeal or review of its decision
should have been made directly to the SC under PD No. 1869 in relation to the last paragraph of Section 6, PD No.
902-A; PAGCOR argued that administrative agencies are co-equal with RTC’s; that application or operation of
presidential decrees are appealable to the SC under Article VIII, Section 4(2) of the 1987 Constitution; and that
there was no basis for the issuance of TRO/Writ of Preliminary Injunction since the franchise or license granted to
FDC was not a property right but was merely a privilege and not a contract.
On November 18, 2008, the RTC issued the first assailed Order denying PAGCOR’s motion to dismiss and
granting FDC’s application for a TRO. The RTC held that the SC had no exclusive jurisdiction over cases involving
PAGCOR; that the cases of Del Mar vs. PAGCOR, Sandoval II vs. PAGCOR, Jaworski vs. PAGCOR were decided
by the SC in the exercise of its discretionary power to take cognizance of cases; that it had jurisdiction over the
instant complaint under Section 21(1) of Batas Pambansa (BP) No. 129 in relation to Article VIII, Section 5(1) of the
1987 Constitution and the rule on hierarchy of courts; that although PAGCOR was granted regulatory powers, it
was not extended quasi-judicial functions; and that PAGCOR is not an administrative agency but a government
owned and controlled corporation. Upon the posting by FDC of the required bond of P500,000.00, the RTC issued
on November 19, 2008 the second assailed Order, a TRO enjoining the implementation of the Standard Authority to
Operate within a period of twenty (20) days. PAGCOR’s motion for reconsideration was denied in the third assailed
Order.
On December 8, 2008, the RTC issued an Order likewise denying FDC’s application for the issuance of a Writ of
Preliminary Injunction. The RTC ruled that FDC failed to present a clear legal right to justify its issuance; that
PAGCOR was granted with legislative right to franchise to other entities the operation of gambling casinos; and that
since what was granted was a license to operate and not a contract, no vested property right was at stake.
Both PAGCOR and Fontana moved for the reconsideration of the aforesaid Order. Fontana maintained that it was
entitled to a Writ of Preliminary Injunction while PAGCOR wanted deleted the finding that it had the authority to
issue casino license to FDC under PD No. 1869.1
On February 5, 2009, PAGCOR filed a petition for certiorari and prohibition before the CA docketed as CA-G.R. SP
No. 107247 entitled PAGCOR represented by Atty. Carlos R. Bautista, Jr. v. Hon. Ma. Theresa Dolores Estoesta
and Fontana Development Corporation, questioning the November 18, 2008 Order, the November 19, 2008 Order
and the December 4, 2008 Order of respondent judge.
Meanwhile, on January 30, 2009, the RTC issued an order, which reconsidered its December 8, 2008 Order and
granted the writ of preliminary injunction in favor of FDC. The trial court held that since public interest is not
prejudiced, the license issued may not be revoked or rescinded by mere executive action. The fallo reads:
WHEREFORE, having sufficiently established a prima facie proof of violation of its right as a casino licensee under
the MOA, FDC’s application for the issuance of a writ of preliminary injunction is GRANTED.
This reconsiders the Order dated December 8, 2008 insofar as it denied the issuance of a writ of preliminary
injunction.
Let a writ of preliminary injunction therefore ISSUE to become effective only upon posting of ONE HUNDRED
MILLION PESOS (P100,000,000.00).
SO ORDERED.
The Writ of Preliminary Injunction2 was issued on February 25, 2009.
On February 17, 2009, PAGCOR filed its Motion for Reconsideration and to Dissolve the Preliminary Injunction for
Insufficiency of Bond and Irreparable Injury to the Government, which was opposed by FDC. By Order issued on
March 31, 2009, the RTC denied PAGCOR’s motion for reconsideration of its Order dated January 30, 2009 that
granted a writ of preliminary injunction in favor of FDC.
On May 19, 2009, the CA rejected the petition in CA-G.R. SP No. 107247 for lack of merit.
In dismissing PAGCOR’s petition, the CA threw out PAGCOR’s postulation that the RTC had no jurisdiction over
the case and that the proper remedy is an original action before this Court, as the corporation is a body equal to the
Securities and Exchange Commission (SEC). The appellate court reasoned that nowhere in Presidential Decree
No. (PD) 1869 and Republic Act No. (RA) 9487 does it state that the instant petition can only be filed with this
Court. Moreover, under RA 8799, the quasi-judicial powers earlier granted to the SEC under PD 902-A were
transferred to the RTC, while the powers retained by the Commission are now subject to appeal to the CA.
An examination of the allegations of the complaint further revealed that it was an original action for injunction, and
under Batas Pampansa Blg. (BP) 129, the RTC shall exercise original jurisdiction over writs of injunction. Lastly, the
CA stressed that the case has been rendered moot and academic, as the TRO issued by Judge Estoesta lapsed on
December 9, 2008 and its issuance has ceased to be a justiciable controversy. On the other hand, PAGCOR did
not assail the writ of preliminary injunction issued by Judge Estoesta on February 25, 2009 after the CA petition
was filed.
In the instant petition, PAGCOR puts forward the following issues for the consideration of the Court, to wit:
—The Court a quo and the trial court decided the question of substance (i.e. What is the proper remedy
available to a party claiming to be aggrieved by PAGCOR in the exercise of its authority to operate games
of chance/gambling and to license and regulate others to operate games of chance/gambling?) not
theretofore determined by the Supreme Court.
—The trial court’s TRO and later a Writ of Preliminary Injunction in favor of the private respondent
prevented herein Petitioner from implementing the standard Authority to Operate. In issuing such
processes the trial court has so far departed from the accepted and usual course of judicial proceedings, as
to call for an exercise of the power of supervision.
—The trial court’s TRO and later a Writ of Preliminary Injunction in favor of private respondent prevented
herein Petitioner from collecting Government revenues in the form of the new license fee from private
respondent under the standard Authority to Operate. In issuing such processes the trial court has so far
departed from the accepted and usual course of judicial proceedings, as to call for an exercise of the power
of supervision.
—The Court a quo in declaring moot and academic the question of the TRO issued by the trial court had
sanctioned the trial court’s departure from the accepted and usual course of judicial proceedings, as to call
for an exercise of the power of supervision.
—The trial court in declaring that herein Petitioner issued the license (MOA) to herein private respondent
under the authority of PD 1869 and not under E.O. 80, Section 5 decided such question of substance in a
way not in accord with law or with the applicable decisions of the Supreme Court.
We synthesize petitioner’s issues to two core issues:
(1) Whether the Manila RTC or this Court has jurisdiction over FDC’s complaint for injunction and specific
performance; and
(2) Did PAGCOR issue the license (MOA) under PD 1869 or under Executive Order No. (EO) 80, Section
5?
On the threshold issue of jurisdiction, PAGCOR insists lack of jurisdiction of the trial court over the complaint of
FDC and, hence, all the processes and writs issued by said court are null and void. It posits that the proper legal
remedy of FDC is not through an injunction complaint before the trial court, but a petition for review on purely
questions of law before this Court or an appeal to the Office of the President. It heavily relies on Sec. 9 of PD 1869,
which states that PAGCOR "shall exercise all the powers, authority and responsibilities vested in the Securities and
Exchange Commission," and Sec. 6 of PD 902-A which provides for a petition for review to this Court from SEC’s
decisions.
We are not convinced.
Jurisdiction of a court over the subject matter of the action is a matter of law and is conferred only by the
Constitution or by statute.3 It is settled that jurisdiction is determined by the allegations of the complaint or the
petition irrespective of whether plaintiff is entitled to all or some of the claims or reliefs asserted. 4
A perusal of FDC’s complaint in Civil Case No. 08-120338 easily reveals that it is an action for injunction based on
an alleged violation of contract—the MOA between the parties—which granted FDC the right to operate a casino
inside the Clark Special Economic Zone (CSEZ). As such, the Manila RTC has jurisdiction over FDC’s complaint
anchored on Sec. 19, Chapter II of BP 129, which grants the RTCs original exclusive jurisdiction over "all civil
actions in which the subject of the litigation is incapable of pecuniary estimation." Evidently, a complaint for
injunction or breach of contract is incapable of pecuniary estimation. Moreover, the RTCs shall exercise original
jurisdiction "in the issuance of writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and
injunction which may be enforced in any part of their respective regions" under Sec. 21 of BP 129.
PAGCOR’s claim of jurisdiction of this Court over the complaint in question heavily leans on Sec. 9 of PD 1869,
PAGCOR’s Charter, which provides:
Section 9. Regulatory Power.—The Corporation shall maintain a Registry of the affiliated entities and shall exercise
all the powers, authority and responsibilities vested in the Securities and Exchange Commission over such affiliated
entities x x x.
In view of the vestment to PAGCOR by PD 1869 of the powers, authority, and responsibilities of the SEC,
PAGCOR concludes that any decision or ruling it renders has to be brought to this Court via a petition for review
based on Sec. 6 of SEC’s Charter, PD 902-A, which reads:
The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the Supreme
Court by petition for review in accordance with the pertinent provisions of the Rules of Court.
This reasoning is flawed. A scrutiny of PD 1869 demonstrates that it has no procedure for the appeal or review of
PAGCOR’s decisions or orders. Neither does it make any express reference to an exclusive remedy that can be
brought before this Court. Even a review of PD 1869’s predecessor laws—PD 1067-A, 1067-B, 1067-C, 1399, and
1632, as well as its amendatory law, RA 9487––do not confer original jurisdiction to this Court to review PAGCOR’s
actions and decisions.
PAGCOR, however, insists that this Court has jurisdiction over an action contesting its exercise of licensing and
regulatory powers, i.e., the revocation of FDC’s license to operate a casino in CSEZ and that FDC’s complaint is a
case of first impression.
PAGCOR’s argument is bereft of merit.
A similar factual setting was presented by PAGCOR in PAGCOR v. Viola,5 which involves the controversy between
PAGCOR and the Mimosa Regency Casino that operated inside the CSEZ. Mimosa filed a case for injunction and
prayed for the issuance of a TRO before the Pampanga RTC when PAGCOR decided to close down the casino. In
this case, PAGCOR likewise assailed the jurisdiction of the trial court by claiming that an original action before the
CA is the proper remedy.
In PAGCOR v. Viola, we ruled that PAGCOR, in the exercise of its licensing and regulatory powers, has no quasi-
judicial functions, as Secs. 8 and 9 of PD 1869 do not grant quasi-judicial powers to PAGCOR. As such, direct
resort to this Court is not allowed. While we allowed said recourse in Del Mar v. PAGCOR6 and Jaworski v.
PAGCOR,7that is an exception to the principle of hierarchy of courts on the grounds of expediency and the
importance of the issues involved. More importantly, we categorically ruled in PAGCOR v. Viola that cases
involving revocation of a license falls within the original jurisdiction of the RTC, thus:
Having settled that PAGCOR’s revocation of MONDRAGON’s authority to operate a casino was not an exercise of
quasi-judicial powers then it follows that the case was properly filed before the Regional Trial Court. Hence, as the
Regional Trial Court had jurisdiction to take cognizance of the case, petitioner’s contention that the temporary
restraining order and the preliminary injunction by the trial court are void must fail. 8
Moreover, it is settled that the normal rule is to strictly follow the hierarchy of courts, thus:
The Supreme Court is a court of last resort, and must so remain if it is to satisfactorily perform the functions
assigned to it by the fundamental charter and immemorial tradition. A direct invocation of this Court’s original
jurisdiction to issue said writs should be allowed only when there are special and important reasons therefor, clearly
and specifically set out in the petition. This is established policy—a policy that is necessary to prevent inordinate
demands upon the Court’s time and attention which are better devoted to those matters within its exclusive
jurisdiction, and to prevent further over-crowding of the Court’s docket.9
While it is the trial court that has original jurisdiction over FDC’s complaint, PAGCOR nevertheless prays that this
Court "suspend the Rules and directly decide the entire controversy in this proceeding instead of remanding the
same to the trial court."10
In the exercise of its broad discretionary power, we will resolve FDC’s complaint on the merits, instead of
remanding it to the trial court for further proceedings. Moreover, the dispute between the parties involves a purely
question of law—whether the license or MOA was issued pursuant to PD 1869 or Sec. 5, EO 80, in relation to RA
7227, which does not necessitate a full blown trial. Demands of substantial justice and equity require the relaxation
of procedural rules.11 In Lianga Bay v. Court of Appeals,12 the Court held:
Remand of case to the lower court for further reception of evidence is not necessary where the court is in a position
to resolve the dispute based on the records before it. On many occasions, the Court, in the public interest and the
expeditious administration of justice, has resolved actions on the merits instead of remanding them to the trial court
for further proceedings, such as where the ends of justice would not be subserved by the remand of the case or
when public interest demands an early disposition of the case or where the trial court had already received all the
evidence of the parties.
The core issue to be resolved is whether the trial court erred in declaring that PAGCOR issued the license (MOA)
to FDC under the authority of PD 1869 and not under EO 80, Sec. 5.
PAGCOR maintains that the license it issued to the FDC was based on Sec. 5 of EO 80 and that its charter PD
1869 should be read together with said EO. When Sec. 5 was nullified in Coconut Oil Refiners Association, Inc. v.
Torres,13 the MOA it entered into with FDC was consequently voided.
Such postulation must fail.
Sec. 5 of EO 80 provides:
SECTION 5. Investments Climate in the CSEZ.—Pursuant to Section 5(m) and Section 15 of RA 7227, the BCDA
shall promulgate all necessary policies, rules and regulations governing the CSEZ, including investment incentives,
in consultation with the local government units and pertinent government departments for implementation by the
CDC.
Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone
under RA 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investments
Code of 1987, the Foreign Investments Act of 1991 and new investments laws which may hereinafter be enacted.
On the other hand, we quote Sec. 13 of RA 7227 in relation to Sec. 5 of EO 80:
Sec. 13. The Subic Bay Metropolitan Authority.—
(a) Creation of the Subic Bay Metropolitan Authority.—A body corporate to be known as the Subic Bay
Metropolitan Authority is hereby created as an operating and implementing arm of the Conversion
Authority.
(b) Powers and functions of the Subic Bay Metropolitan Authority.—The Subic Bay Metropolitan Authority,
otherwise known as the Subic Authority, shall have the following powers and function:
xxxx
7) To operate directly or indirectly or license tourism related activities subject to priorities and standards set
by the Subic Authority including games and amusements, except horse racing, dog racing and casino
gambling which shall continue to be licensed by the Philippine Amusement and Gaming Corporation
(PAGCOR) upon recommendation of the Conversion Authority; to maintain and preserve the forested areas
as a national park.
A reading of the aforequoted provisions does not point to any authority granted to PAGCOR to license casinos
within Subic, Clark, or any other economic zone. As a matter of fact, Sec. 13 of RA 7227 simply shows that SBMA
has no power to license or operate casinos. Rather, said casinos shall continue to be licensed by PAGCOR.
Hence, the source of PAGCOR’s authority lies in its basic charter, PD 1869, as amended, and neither in RA 7227
nor its extension, EO 80, for the latter merely recognizes PAGCOR’s power to license casinos. Indeed, PD 1869
empowers PAGCOR to regulate and control all games of chance within the Philippines, and clearly, RA 7227 or EO
80 cannot be the source of its powers, but its basic charter, PD 1869.
Basco v. PAGCOR14 points to PD 1869 as the source of authority for PAGCOR to regulate and centralize all games
of chance authorized by existing franchise or law, thus:
P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate
institution all games of chance authorized by existing franchise or permitted by law" (1st Whereas Clause, PD
1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity – the
PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much
needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected
gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD
1869).
Lastly, only PD 1869, particularly Secs. 8 and 9 and not any other law, requires registration and affiliation of all
persons primarily engaged in gambling with PAGCOR. We quote Secs. 8 and 9:
TITLE III—AFFILIATION PROVISIONS
Section 8. Registration.—All persons primarily engaged in gambling, together with their allied business, with
contract or franchise from the Corporation, shall register and affiliate their businesses with the Corporation. The
Corporation shall issue the corresponding certificates of affiliation upon compliance by the registering entity with the
promulgated rules and regulations.
Section 9. Regulatory Power.—The Corporation shall maintain a Registry of the affiliated entities, and shall
exercise all the powers, authority and the responsibilities vested in the Securities and Exchange Commission over
such affiliated entities mentioned under the preceding section, including but not limited to amendments of Articles of
Incorporation and By-Laws, changes in corporate term, structure, capitalization and other matters concerning the
operation of the affiliating entities, the provisions of the Corporation Code of the Philippines to the contrary
notwithstanding, except only with respect to original incorporation.
In the light of the foregoing provisions, it is unequivocal that PAGCOR draws its authority and power to operate and
regulate casinos from PD 1869, and neither from Sec. 5 of EO 80 nor from RA 7227. Hence, since PD 1869
remains unaffected by the unconstitutionality of Sec. 5 of EO 80, then PAGCOR has no legal basis for nullifying or
recalling the MOA with FDC and replacing it with its new Standard Authority to Operate (SAO). There is no infirmity
in the MOA, as it was validly entered by PAGCOR under PD 1869 and remains valid until legally terminated in
accordance with the MOA.1avph!1
The reliance of PAGCOR on Coconut Oil Refiners Association, Inc. 15 to buttress its position that the MOA with FDC
can be validly supplanted with the 10-year SAO is clearly misplaced. That case cannot be a precedent to the
instant case, as it dealt solely with the void grant of tax and duty-free incentives inside CSEZ. The Court ruled in
Coconut Oil Refiners Association, Inc. that the tax incentives within the CSEZ were an invalid exercise of quasi-
legislative powers, thus:
In the present case, while Section 12 of Republic Act No. 7227 expressly provides for the grant of incentives to the
SSEZ, it fails to make any similar grant in favor of other economic zones, including the CSEZ. Tax and duty-free
incentives being in the nature of tax exemptions, the basis thereof should be categorically and unmistakably
expressed from the language of the statute. Consequently, in the absence of any express grant of tax and duty-free
privileges to the CSEZ in Republic Act No. 7227, there would be no legal basis to uphold the questioned portions of
two issuances: Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034, which
both pertain to the CSEZ. (Emphasis supplied.)
Lastly, the Court has to point out that the issuance of the 10-year SAO by PAGCOR in lieu of the MOA with FDC is
a breach of the MOA. The MOA in question was validly entered into by PAGCOR and FDC on December 23, 1999.
It embodied the license and authority to operate a casino, the nature and extent of PAGCOR’s regulatory powers
over the casino, and the rights and obligations of FDC. Thus, the MOA is a valid contract with all the essential
elements required under the Civil Code. The parties are then bound by the stipulations of the MOA subject to the
regulatory powers of PAGCOR. Well-settled is the rule that a contract voluntarily entered into by the parties is the
law between them and all issues or controversies shall be resolved mainly by the provisions thereof. 16
On the revocation, termination, or suspension of the license or grant of authority to operate a casino, PAGCOR
agreed to the following stipulations on the revocation or termination of the MOA, viz:
VI. REVOCATION/TERMINATION
1. This grant of authority may be revoked or suspended at any time at the sole option of PAGCOR by
giving written notice to RNDC [FDC] of such revocation or suspension stating therein the reason(s) for such
revocation or suspension, on any of the following grounds:
a. RNDC makes any default which PAGCOR considers material in the due and punctual
performance or observance of any of the obligations or undertakings contained in the Agreement,
and RNDC shall fail to remedy such default, within fifteen (15) working days after notice specifying
the default. Should the default consist in the non-remittance of the consideration as hereinabove
specified, PAGCOR shall, in addition have the right to proceed against the Surety Bond, unless
RNDC was able to cure the default so specified by PAGCOR within seventy-two (72) hours after
notice specifying the default. RNDC shall be liable for interest at the prevailing commercial rates on
all or portion of the amounts due.
b. There shall be any failure on the part of RNDC which PAGCOR considers material to comply
with any provision of the Agreement and RNDC fails to remedy the same within fifteen (15) working
days after notice specifying the default;
c. RNDC has become bankrupt;
d. After the RNDC casino shall have formally commenced gaming and amusement operations
within the CSEZ, RNDC’s continuous cumulative non-operation of the casino for a period of one (1)
month except upon lawful order of the Court or force majeure, provided that upon the cessation of
such cause or causes, RNDC shall immediately continue its casino operations, otherwise, such
continuous non-operation for the period provided above shall be sufficient ground for revocation or
suspension;
e. Failure of RNDC to comply with and observe any pertinent law, rule, regulation and/or ordinance
promulgated by a competent authority, including PAGCOR, relative to the operation of the casino;
f. Such other situations analogous to the above.17
 Central to the present controversy is the term or period of effectivity of the MOA, as provided under the
definition of terms in Title I and Title II, No. 4, which, for clarity, we reiterate in full:
"Period" refers to the period of time co-terminus with that of the franchise granted to PAGCOR in
accordance with Section 10 of Presidential Decree No. 1869 including any extension thereof; 18
xxxx
4. Non-exclusivity. PAGCOR and RNDC agree that the license granted to RNDC to engage in gaming and
amusement operations within the CSEZ shall be non-exclusive and co-terminus with the Charter of
PAGCOR, or any extension thereof, and shall be for the period hereinabove defined. 19 (Emphasis
supplied.)
As parties to the MOA, FDC and PAGCOR bound themselves to all its provisions. After all, the terms of a contract
have the force of law between the parties, and courts have no choice but to enforce such contract so long as they
are not contrary to law, morals, good customs, or public policy.20 A stipulation for the term or period for the
effectivity of the MOA to be co-terminus with term of the franchise of PAGCOR including any extension is not
contrary to law, morals, good customs, or public policy.
It is beyond doubt that PAGCOR did not revoke or terminate the MOA based on any of the grounds enumerated in
No. 1 of Title VI, nor did it terminate it based on the period of effectivity of the MOA specified in Title I and Title II,
No. 4 of the MOA. Without explicitly terminating the MOA, PAGCOR simply informed FDC on July 18, 2008 that it is
giving the latter an extension of the MOA on a month-to-month basis in gross contravention of the MOA. Worse,
PAGCOR informed FDC only on October 6, 2008 that the MOA is deemed expired on July 11, 2008 without an
automatic renewal and is replaced with a 10-year SAO. Clearly it is in breach of the MOA’s stipulated effectivity
period which is co-terminus with that of the franchise granted to PAGCOR in accordance with Sec. 10 of PD 1869
including any extension. Hence, PAGCOR’s disregard of the MOA is without legal basis and must be nullified.
PAGCOR has to respect the December 23, 1999 MOA it entered into with FDC, especially considering the huge
investment poured into the project by the latter in reliance and pursuant to the MOA in question.
WHEREFORE, the petition is hereby DENIED for lack of merit. The Decision dated May 19, 2009 of the CA in CA-
G.R. SP No. 107247 affirming the Orders dated November 18, 2008 and December 4, 2008 of the RTC, Branch 7
in Manila is hereby AFFIRMED. The writ of injunction issued on February 25, 2009 by the trial court pursuant to the
January 30, 2009 Order in Civil Case No. 08-120338 is hereby made PERMANENT. PAGCOR is ordered to honor
and comply with the stipulations of the MOA dated December 23, 1999, as amended, that it executed with FDC.
SO ORDERED.

PATALINGHUG vs. COMMISSION ON ELECTIONS

G.R. No. 178767 January 30, 2008

RESOLUTION
For the resolution of the Court is a petition for certiorari under Rule 65 assailing (a) the May 25, 2007 Order1 of the
Commission on Elections (COMELEC) First Division in Ref. No. 07-028; (b) the June 4, 2007 Resolution2 of the
COMELEC First Division in SPC No. 07-011; and (c) the June 28, 2007 Resolution No. 8212 3 or the Omnibus
Resolution on Pending Cases issued by the COMELEC en banc.
The factual antecedents of the case follow.
In the May 14, 2007 national and local elections, petitioners ran for the local positions (mayor, vice-mayor and
councilor) in Lapu-Lapu City. At the start of and during the canvassing, petitioners questioned the composition of
the Board of Canvassers (BOC), and objected to the inclusion of several election returns (ERs). As the BOC ruled
against them, petitioners filed their notices of appeal, 4 and consequently, initiated with the COMELEC a Pre-
Proclamation Petition5 docketed as SPC No. 07-011, seeking the declaration of the composition and the
proceedings of the BOC as illegal.6
Petitioners also filed an Appeal7 docketed as SPC No. 07-180 with the COMELEC, praying for the non-inclusion in
the canvass of 182 ERs on alleged grounds under Sections 243 (b), (c) and (d), and 214 of the Omnibus Election
Code (OEC) or Batas Pambansa (B.P.) Blg. 881.8
On May 25, 2007, the COMELEC First Division issued in Ref. No. 07-028 the first assailed Order9 directing the
BOC to proclaim the winning candidates in the official canvass. 10 (As alleged in the petition, the petitioners received
a copy of this Order on May 27, 2007.)11
On the following day, May 26, 2007, the BOC proclaimed private respondents as the duly elected officials of Lapu-
Lapu City.12 Dissatisfied, petitioners moved, in SPC No. 07-180, for the recall and/or nullification of the said
proclamation on May 29, 2007.13
On June 4, 2007, the COMELEC First Division in SPC No. 07-011 rendered the second assailed
Resolution14dismissing the said case. (Again, as alleged in the petition, petitioners received a copy of this resolution
on June 15, 2007.)15
Aggrieved, petitioners on June 26, 2007 moved for the reconsideration of the said Resolution in SPC No. 07-
011.
Consequently, on June 28, 2007, the COMELEC en banc issued the third assailed Resolution No. 8212 or the
Omnibus Resolution on Pending Cases.16 (Petitioners allege that they received a copy of this Resolution on July
12, 2007.)17 In the said Resolution, petitioners’ cases—SPC Nos. 07-11 and 07-180—were not included in the list
of pre-proclamation cases that shall remain active after June 30, 2007 pursuant to Section 16 of Republic Act (R.A.)
No. 7166.18
Discontented with the said COMELEC issuances, petitioners, on July 26, 2007,19 instituted the instant petition
for certiorari under Rule 65.20
Respondents in their Comment21 countered, among others,22 that COMELEC Resolution No. 8212 could not be
questioned via a petition for certiorari because it was not issued in the COMELEC’s exercise of quasi-judicial
functions. It was rather issued in the exercise of its power to enforce and administer all laws relative to the conduct
of elections as enunciated in Section 52 of the OEC. Furthermore, the petition was filed beyond the 30-day
reglementary period for questioning via certiorari final orders and resolutions of the COMELEC.23
A crucial issue in the resolution of this case is the propriety of the instant certiorari petition to challenge COMELEC
Resolution No. 8212. Of equal significance is the issue of whether petitioners have sufficiently shown that the
COMELEC gravely abused its discretion in issuing the challenged resolutions.
While petitioners correctly filed the instant certiorari petition to question COMELEC Resolution No. 8212, they failed
to sufficiently show grave abuse of discretion on the part of the COMELEC in its issuance of the said Resolution.
To elucidate, the COMELEC en banc, on June 28, 2007, issued Resolution No. 8212 or the Omnibus Resolution
on Pending Cases, which excluded SPC Nos. 07-011 and 07-180 from the list of pre-proclamation cases that shall
remain active after June 30, 2007. The exclusion of petitioners’ cases is, in effect, a denial by the COMELEC en
banc of petitioners’ pending motion for reconsideration in SPC No. 07-011, and a dismissal of SPC No. 07-
180. The Court notes that, at the time Resolution No. 8212 was issued, the COMELEC First Division had not yet
made a definitive ruling in SPC No. 07-180 (as opposed to what it did in SPC No. 07-11) and the COMELEC en
banc had not yet resolved the motion for reconsideration in SPC No. 07-11.
Necessarily, as the cases were already excluded from the aforesaid list, petitioners no longer had any reason to
expect a favorable ruling by the division in SPC No. 07-180 and by the banc in SPC No. 07-11. It would have been
futile then for petitioners to still adhere to the procedure mandated by Section 3 of Article IX-C of the 1987
Constitution,24 await the decision of the COMELEC in the main cases, and then challenge the same
on certioraribefore this Court.25
Accordingly, the appropriate recourse was for petitioners to timely assail COMELEC Resolution No. 8212 before
this Court, which they, in fact, did, via the special civil action of certiorari, following Rules 64 and 65 of the Rules of
Court.26
We clarify, at this point, that COMELEC Resolution No. 8212 is an issuance in the exercise of the
COMELEC’s adjudicatory or quasi-judicial function. The same was issued pursuant to the second paragraph of
Section 16 of R.A. No. 7166, which states that -
[a]ll pre-proclamation cases pending before the Commission shall be deemed terminated at the beginning
of the term of the office involved and the rulings of the boards of canvassers concerned shall be deemed
affirmed, without prejudice to the filing of a regular election protest by the aggrieved party.
However, proceedings may continue when on the basis of the evidence thus far presented, the
Commission determines that the petition appears meritorious and accordingly issues an order for the
proceeding to continue or when an appropriate order has been issued by the Supreme Court in a petition
for certiorari. (Italics supplied)27
The determination by the COMELEC of the merits of a pre-proclamation case definitely involves the exercise of
adjudicatory powers. The COMELEC examines and weighs the parties’ pieces of evidence vis-à-vis their respective
arguments, and considers whether, on the basis of the evidence thus far presented, the case appears to have
merit. Where a power rests in judgment or discretion, so that it is of judicial nature or character, but does not
involve the exercise of functions of a judge, or is conferred upon an officer other than a judicial officer, it is deemed
quasi-judicial.28
The Court, in this case, therefore finds the instant petition to be the correct remedy in challenging COMELEC
Resolution No. 8212.
Noticeable in the petition, however, is that petitioners, instead of denominating their petition as one under Rules 64
and 65 of the Rules, merely captioned it as one under Rule 65, and further erroneously invoked the 60-day
reglementary period in the said Rule29 rather than the 30-day period in Rule 64.30 But respondents also erred in
their counter-arguments that the petition is the wrong recourse and is belatedly filed.
The Court is disinclined to dismiss the petition based only on petitioners’ alleged errors because, in reality, they
filed a Rule 64 cum Rule 65 petition within the 30-day reglementary period.
We merely mentioned the said mistakes to emphasize the perplexity among many candidates and election law
practitioners brought about by the issuance of COMELEC resolutions pursuant to Section 16, R.A. No. 7166. In the
instant case, several factors further contributed to the confusion—the absence of a definitive ruling by the
COMELEC division in SPC No. 07-180; the absence of a final ruling by the COMELEC en banc on petitioners’
motion for reconsideration in SPC No. 07-011; and the issuance of the said COMELEC Resolution No. 8212
excluding petitioners’ cases from the list of active cases without, as aforesaid, any definite resolution of the issues
raised.
To avoid similar instances of confusion and for the guidance of the bench and the bar, the Court takes this
opportunity to lay down the following guidelines on the appropriate recourse to assail COMELEC resolutions issued
pursuant to Section 16 of R.A. No. 7166.
First, if a pre-proclamation case is excluded from the list of those (annexed to the Omnibus Resolution on
Pending Cases) that shall continue after the beginning of the term of the office involved, the remedy of the
aggrieved party is to timely file a certiorari petition assailing the Omnibus Resolution before the Court under Rules
64 and 65, regardless of whether a COMELEC division is yet to issue a definitive ruling in the main case or the
COMELEC en banc is yet to act on a motion for reconsideration filed if there is any.
It follows that if the resolution on the motion for reconsideration by the banc precedes the exclusion of the said case
from the list, what should be brought before the Court on certiorari is the decision resolving the motion.
Second, if a pre-proclamation case is dismissed by a COMELEC division and, on the same date of dismissal
or within the period to file a motion for reconsideration, the COMELEC en banc excluded the said case from
the list annexed to the Omnibus Resolution, the remedy of the aggrieved party is also to timely file
a certioraripetition assailing the Omnibus Resolution before the Court under Rules 64 and 65. The aggrieved party
need no longer file a motion for reconsideration of the division ruling.
The rationale for this is that the exclusion by the COMELEC en banc of a pre-proclamation case from the list of
those that shall continue is already deemed a final dismissal of that case not only by the division but also by the
COMELEC en banc. As already explained earlier, the aggrieved party can no longer expect any favorable ruling
from the COMELEC.
And third, if a pre-proclamation case is dismissed by a COMELEC division but, on the same date of
dismissal or within the period to file a motion for reconsideration, the COMELEC en banc included the case
in the list annexed to the Omnibus Resolution, the remedy of the aggrieved party is to timely file a motion for
reconsideration with the COMELEC en banc. The reason for this is that the challenge to the ruling of the
COMELEC division will have to be resolved definitively by the entire body.
In laying down the said guidelines, the Court is not unaware of its ruling in Santos v. Commission on
Elections,31that the filing of a motion for reconsideration with the COMELEC en banc of a division’s dismissal of a
pre-proclamation case, and the simultaneous filing of a certiorari petition before this Court questioning the
Omnibus Resolution/list constitutes forum shopping. The Santos doctrine shall continue to apply to every case with
a similar or parallel factual setting.
Viewed in light of these guidelines, the instant petition is timely filed and is still the proper recourse to question
COMELEC Resolution No. 8212.
However, the Court resolves to dismiss the petition.
For an action for certiorari to prosper, there must be a showing that the COMELEC acted with "grave abuse of
discretion," which means such capricious and whimsical exercise of judgment equivalent to lack of jurisdiction or
excess thereof.32 The abuse of discretion must be patent and gross as to amount to an evasion of positive duty or a
virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as where the power is
exercised in an arbitrary and despotic manner by reason of passion and hostility. 33
In the present case, petitioners have not sufficiently shown that the COMELEC gravely abused its discretion in
excluding their cases from the list of those that shall continue. Apart from petitioners’ bare allegations, the record is
bereft of any evidence to prove that petitioners’ pre-proclamation cases appear meritorious. Let it be stressed that
under Section 16 of Article 7166, the proceedings may continue when "on the basis of the evidence thus far
presented," the COMELEC determines that the pre-proclamation petition appears meritorious.
Finally, the Court notes that with the proclamation of the winning candidates for the positions contested, the
question of whether the petition raised issues proper for a pre-proclamation controversy is already of no
consequence, since the well-entrenched rule in such situation is that a pre-proclamation case before the
COMELEC is no longer viable, the more appropriate remedy being a regular election protest or a petition for quo
warranto.34
WHEREFORE, premises considered, the petition for certiorari is DISMISSED.
SO ORDERED.

CITY ENGINEER OF BAGUIO vs. BANIQUED

G.R. No. 150270 November 26, 2008

DECISION
OFT-QUOTED in cases involving searches and seizures is the principle that a man's home is his castle. Not even
the king would dare desecrate it. In protecting his home, the poorest and most humble citizen or subject may bid
defiance to all the powers of the State.1 Indeed, a man is king in his own house.
The case before Us views the sanctity of a man's home in a different light. It is about a man's struggle against the
attempt of the State to demolish his house.
Petitioners Leo Bernardez, Jr. and Mauricio Domogan question by way of appeal under Rule 45 the Decision 2 and
Resolution3 of the Court of Appeals (CA) which set aside the Order 4 of the Regional Trial Court (RTC) dismissing
the complaint5 for prohibition with temporary restraining order (TRO)/injunction filed by private respondent Rolando
Baniqued.
The Facts
Generoso Bonifacio, acting as the attorney-in-fact of Purificacion de Joya, Milagros Villar, Minerva Baluyut and
Israel de Leon filed a complaint with the Office of the Mayor of Baguio City seeking the demolition of a house built
on a parcel of land6 located at Upper Quezon Hill, Baguio City.
On May 19, 1999, Domogan, the then city mayor of Baguio City, issued Notice of Demolition No. 55, Series of
1999, against spouses Rolando and Fidela Baniqued. Pertinent parts of the notice read:
The investigation and ocular inspection conducted by the City Engineer's Office (memorandum dated 18
February 1998) showed that you built your structures sometime in 1999 without any building permit in
violation of P.D. 1096 and possibly R.A. 7279, qualifying your structure structures illegal, thus, subject to
demolition.
The Anti-Squatting Committee in its Resolution No. 52-4 dated 22 April 1999 has recommended for the
demolition of your illegal structures.
IN VIEW OF THE FOREGOING, you are hereby notified to voluntarily remove/demolish your illegal
structures within seven (7) days from receipt of this notice, otherwise the City Demolition Team will
undertake the demolition of your illegal structures at your own expense.7
Aggrieved, Rolando Baniqued filed a complaint for prohibition with TRO/injunction before Branch 60 of the RTC in
Baguio City.
In his complaint, Baniqued alleged that the intended demolition of his house was done without due process of law
and "was arrived at arbitrarily and in a martial-law like fashion." Specifically, Baniqued alleged that he was (1) never
given any copy of the complaint of Generoso Bonifacio; (2) "never summoned nor subpoenaed to answer that
complaint"; (3) "never allowed to participate in the investigation and ocular inspection which the City Engineer's
Office allegedly conducted, as a consequence of the complaint of Bonifacio, much less to adduce evidence in
support of his position"; (4) "never summoned nor subpoenaed to appear before the Anti-Squatting Committee";
and (5) "not given the opportunity to contest the complaint against him, before such complaint was decided and to
be carried out by the Defendants."8
Baniqued buttressed his complaint by arguing that Article 536 of the Civil Code should be applied, i.e., there should
be a court action and a court order first before his house can be demolished and before he can be ousted from the
lot.9 More, under Section 28 of Republic Act 7279, an adequate relocation should be provided first before
demolition can be had.10 Too, by virtue of the National Building Code or Presidential Decree (P.D.) No. 1096, the
demolition of buildings or structures should only be resorted to in case they are dangerous or ruinous. Otherwise,
the remedy is criminal prosecution under Section 213 of P.D. No. 1096. 11 Lastly, the 1991 Local Government Code
does not empower the mayor to order the demolition of anything unless the interested party was afforded prior
hearing and unless the provisions of law pertaining to demolition are satisfied.12 Thus, Baniqued prayed for the
following reliefs:
A. Immediately upon the filing hereof, a temporary restraining order be issued stopping the Defendants, or
any other person acting under their orders or authority, from carrying out, or causing to carry out, the
demolition of Plaintiff's residential unit at Upper Quezon Hill, Baguio City under Notice of Demolition No. 55;
B. After due notice and hearing, a writ of preliminary injunction be issued for the same purpose as to that of
the TRO, and, thereafter, for this preliminary writ to be made permanent;
C. A writ of prohibition be issued, commanding the Defendants to stop carrying out, or causing to carry out,
the demolition of the aforesaid unit of the Plaintiffs.13
On June 7, 1999, the RTC enjoined the carrying out of the demolition of the house of Baniqued. The hearing on his
application for preliminary injunction was also set. 14
On June 25, 1999, petitioners moved to dismiss 15 the complaint of Baniqued on the ground of lack of cause of
action because (1) there is nothing to be enjoined "as there is no Demolition Order issued by the City Mayor" and
that the Demolition Team "does not demolish on the basis of a mere Notice of Demolition"; (2) he has "no clear
legal right to be protected as his structure is illegal, the same having been built on a land he does not own without
the consent of the owner thereof and without securing the requisite building permit"; (3) the Notice of Demolition
"was issued in accordance with law and in due performance of the duties and functions of defendants, who being
public officers, are mandated by law to enforce all pertinent laws against illegal constructions"; and that (4)
"[d]efendants do not exercise judicial and quasi-judicial functions. Neither was the issuance of the assailed Notice
of Demolition an exercise of a ministerial function. Nor is there any allegation in the complaint that defendants acted
without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction." 16
RTC and CA Dispositions
On October 15, 1999, the RTC granted the motion of petitioners and dismissed the complaint of Baniqued with the
following disposition:
WHEREFORE, finding merit in the motion to dismiss filed by the defendant, the same is hereby GRANTED
and this case is hereby DISMISSED without pronouncement as to costs.
Atty. Melanio Mauricio is hereby cited for contempt of court and is hereby warned that a repetition of his
use of improper language whether orally or in any of his pleadings will be dealt with more severely in the
future.
SO ORDERED.17
The RTC reasoned that petitioners "are unquestionably members of the executive branch whose functions are
neither judicial nor quasi-judicial."18 The RTC also sustained the argument of petitioners that "the act complained of
can hardly qualify as ministerial in nature as to put it within the ambit of the rule on prohibition."19 Lastly, the
complaint of Baniqued was procedurally infirm because he failed to exhaust administrative remedies. 20
Baniqued moved for reconsideration21 which was opposed.22 On March 3, 2000, the RTC denied the motion.23
Refusing to give up, Baniqued appealed the decision of the RTC. The CA sustained Baniqued, disposing as
follows:
 IN VIEW OF ALL THE FOREGOING, the instant petition is GRANTED and the appealed Orders dated
October 15, 1999 and March 3 2000 are both RECALLED and SET ASIDE and a new one
issued DENYING the Motion to Dismiss dated June 25, 1999. After the finality of this judgment, let the
entire original records of the case at bench be returned to the court a quo which is reminded to decide the
case on the merits and with dispatch. No pronouncement as to costs.
SO ORDERED.24
According to the CA, it may be true that the mayor is an executive official. However, as such, he has also been
given the authority to hear controversies involving property rights. In that regard, the Mayor exercises quasi-judicial
functions.25
The CA also held that the allegations in the complaint of Baniqued state a cause of action. The averments in the
complaint call for a determination whether court action is needed before Baniqued can be ousted from the
questioned lot.26
Petitioners attempted at a reconsideration27 to no avail. Left with no other recourse, they interposed the present
appeal.28
Issues
Petitioners impute to the CA the following errors, viz.:
1. THE COURT OF APPEALS GRAVELY ERRED AND ABUSED ITS DISCRETION IN RULING THAT
THE ACT OF THE CITY MAYOR IN ISSUING A NOTICE OF DEMOLITION IS A QUASI-JUDICIAL
FUNCTION;
2. THE COURT OF APPEALS GRAVELY ERRED AND ABUSED ITS DISCRETION IN RULING THAT
THE ACTION OF PROHIBITION FILED BY BANIQUED WITH THE TRIAL COURT IS PROPER UNDER
THE CIRCUMSTANCES;
3. THE COURT OF APPEALS GRAVELY ERRED AND ABUSED ITS DISCRETION IN REVERSING THE
DECISION OF THE TRIAL COURT.29 (Underscoring supplied)
In sum, petitioners claim that Baniqued incorrectly availed of the remedy of prohibition.
Our Ruling
The petition is unmeritorious.
Baniqued correctly availed of the remedy of prohibition. Prohibition or a "writ of prohibition" is that process by
which a superior court prevents inferior courts, tribunals, officers, or persons from usurping or exercising a
jurisdiction with which they have not been vested by law.30 As its name indicates, the writ is one that commands the
person or tribunal to whom it is directed not to do something which he or she is about to do. The writ is also
commonly defined as one to prevent a tribunal possessing judicial or quasi-judicial powers from exercising
jurisdiction over matters not within its cognizance or exceeding its jurisdiction in matters of which it has
cognizance.31 At common law, prohibition was a remedy used when subordinate courts and inferior tribunals
assumed jurisdiction which was not properly theirs.
Prohibition, at common law, was a remedy against encroachment of jurisdiction. Its office was to restrain
subordinate courts and inferior judicial tribunals from extending their jurisdiction and, in adopting the
remedy, the courts have almost universally preserved its original common-law nature, object and function.
Thus, as a rule, its proper function is to prevent courts, or other tribunals, officers, or persons from usurping
or exercising a jurisdiction with which they are not vested by law, and confine them to the exercise of those
powers legally conferred. However, the function of the writ has been extended by some authorities to cover
situations where, even though the lower tribunal has jurisdiction, the superior court deems it necessary and
advisable to issue the writ to prevent some palpable and irremediable injustice, and, x x x the office of the
remedy in some jurisdictions has been enlarged or restricted by constitutional or statutory provisions. While
prohibition has been classified as an equitable remedy, it is generally referred to as a common-law remedy
or writ; it is a remedy which is in nature legal, although, x x x its issuance is governed by equitable
principles.32 (Citations omitted)
Prohibition is not a new concept. It is a remedy of ancient origin. It is even said that it is as old as common law
itself. The concept originated in conflicts of jurisdiction between royal courts and those of the church. 33 In our
jurisdiction, the rule on prohibition is enshrined in Section 2, Rule 65 of the Rules on Civil Procedure, to wit:
 Sec. 2. Petition for prohibition. - When the proceedings of any tribunal, corporation, board, officer or
person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its or
his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that the
judgment be rendered commanding the respondent to desist from further proceedings in the action or
matter specified therein, or otherwise granting such incidental reliefs as the law and justice require.
The petition shall likewise be accompanied by a certified true copy of the judgment, order or resolution
subject thereof, copies of all pleadings and documents relevant and pertinent thereto and a sworn
certification of non-forum shopping as provided in the third paragraph of Section 3, Rule 46.
It is very clear that before resorting to the remedy of prohibition, there should be "no appeal or any other plain,
speedy, and adequate remedy in the ordinary course of law." Thus, jurisprudence teaches that resort to
administrative remedies should be had first before judicial intervention can be availed of.
This Court in a long line of cases has consistently held that before a party is allowed to seek the
intervention of the court, it is a pre-condition that he should have availed of all the means of administrative
processes afforded him. Hence, if a remedy within the administrative machinery can still be resorted to by
giving the administrative officer concerned every opportunity to decide on a matter that comes within his
jurisdiction then such remedy should be exhausted first before court's judicial power can be sought. The
premature invocation of court's intervention is fatal to one's cause of action. x x x34
Explaining the reason behind the rule, Mr. Justice Justo Torres, Jr., expounded, thus:
x x x This doctrine of exhaustion of administrative remedies was not without its practical and legal reasons,
for one thing, availment of administrative remedy entails lesser expenses and provides for a speedier
disposition of controversies. It is no less true to state that the courts of justice for reasons of comity and
convenience will shy away from a dispute until the system of administrative redress has been completed
and complied with so as to give the administrative agency concerned every opportunity to correct its error
and to dispose of the case. x x x35
Petitioners are of the view that the complaint of Baniqued for prohibition is fatally defective because he failed to
exhaust administrative remedies. If he felt aggrieved by the issuance of the notice of demolition, administrative
remedies were readily available to him. For example, he could have easily filed a motion for reinvestigation or
reconsideration.36
The argument fails to persuade.
The doctrine of exhaustion of administrative remedies is not an iron-clad rule.37 It admits of several exceptions.
Jurisprudence is well-settled that the doctrine does not apply in cases (1) when the question raised is purely legal;
(2) when the administrative body is in estoppel; (3) when the act complained of is patently illegal; (4) when there is
urgent need for judicial intervention; (5) when the claim involved is small; (6) when irreparable damage will be
suffered; (7) when there is no other plain, speedy, and adequate remedy; (8) when strong public interest is
involved; (9) when the subject of the proceeding is private land; (10) in quo warranto proceedings; and (11) where
the facts show that there was violation of due process. 38
Here, there was an urgent need for judicial intervention. The filing of a motion for reinvestigation or reconsideration
would have been a useless exercise. The notice of demolition is very clear and speaks for itself. City Mayor
Domogan already made up his mind that the house of Baniqued was illegally built and was thus subject to
demolition. It could reasonably be assumed that a motion for reinvestigation or reconsideration would have also
been denied outright. The irreparable damage to Baniqued in case his house was demolished cannot be gainsaid.
Petitioners contend, though, that the complaint of Baniqued is premature. They say that what was issued by City
Mayor Domogan was only a notice of demolition, and not an order of demolition.39 In short, petitioners are saying
that Baniqued jumped the gun. He should have waited first for the issuance of a demolition order because no
demolition can be carried out in the absence of such order.
To Our mind, the distinction between a notice of demolition and an order of demolition is immaterial. What is
material is that Baniqued felt threatened with the impending demolition of his house. It would have been too late
and illogical if he waited first for his house to be actually demolished, before seeking protection from the courts.
Acting in the earliest opportunity and availing of the best remedy available to protect his right was the prudent
course of action.
Petitioners also argue that the complaint of Baniqued should not prosper because he never allegedthat the act
complained of was done without or in excess of jurisdiction or with grave abuse of discretion. 40 To support their
stance, they cite Reyes v. Romero41 where this Court denied the petition for prohibition because there was "no
allegation whatsoever charging the respondent Judge with lack of jurisdiction or with having committed grave abuse
of discretion."42 Put differently, petitioners argue that for a complaint for prohibition to prosper, there should be a
specific allegation that the act complained of was done without or in excess of jurisdiction or with grave abuse of
discretion.
The argument is specious on two grounds.
First, Romero is not necessarily applicable to the instant case because it involved a different set of facts. There, a
team of PC Rangers raided a house in Pasay City, Rizal, which was dubbed as a Gambling Casino. As a result,
twelve persons were charged for violating the gambling law. The case was tried in the branch of the Municipal Trial
Court in Pasay presided by Judge Lucio Tianco. The accused were later acquitted for insufficiency of evidence.
An off-shoot of the raid was the prosecution of petitioners as maintainers of a gambling den. The case was also
assigned to the sala of Judge Tianco. However, as Judge Tianco was on leave, the Secretary of Justice designated
Judge Guillermo Romero to preside over said branch.
Sometime later, Judge Tianco returned to office and resumed his duties. This, notwithstanding, Judge Romero
ordered the continuation of the trial before him. Petitioners then sought the inhibition of Judge Romero in view of
the return of Judge Tianco. The motion was denied. The matter was brought directly to this Court on petition for
prohibition with preliminary injunction. One of the two issues resolved by the Court was "whether respondent Judge
in refusing to inhibit himself from continuing with the trial of the criminal case in question, acted without or in excess
of his jurisdiction or with grave abuse of discretion."43
Clearly, the surrounding circumstances in Romero are absent in the case now before Us. They cannot be remotely
applied even by analogy.
Second, petitioners misconstrued Romero by interpreting it literally. The better interpretation is that the absence of
specific allegation that the act complained of was done without or in excess of jurisdiction or with grave abuse of
discretion would not automatically cause the dismissal of the complaint for prohibition, provided that a reading of
the allegations in the complaint leads to no other conclusion than that the act complained of was, indeed, done
without or in excess of jurisdiction. To subscribe to the reasoning of petitioners may lead to an absurd situation. A
patently unmeritorious complaint for prohibition may not be given due course just because of an allegation that the
act complained of was committed without or in excess of jurisdiction or with grave abuse of discretion.
This interpretation is supported by Romero itself. Petitioners overlooked that the case goes on to say that even if
there were allegations of grave abuse of discretion, "there can be no abuse of discretion, much less a grave one,
for respondent Judge to comply with a valid and legal Administrative Order (No. 183) of the Secretary of Justice." 44
The Mayor, although performing executive functions, also exercises quasi-judicial function which may be
corrected by prohibition. As a parting argument, petitioners contend that the complaint of Baniqued is outside the
scope of the rule on prohibition which covers the proceedings of any "tribunal, corporation, board, officer or person,
whether exercising judicial, quasi-judicial or ministerial functions." The issuance of the notice of demolition by the
City Mayor is never a judicial, ministerial or rule-making function. It is strictly an act of law enforcement and
implementation, which is purely an executive function. Neither is the Office of the City Mayor a quasi-judicial body.45
Again, petitioners are mistaken. We need not belabor so much on this point. We quote with approval the CA
observations in this regard, viz.:
Under existing laws, the office of the mayor is given powers not only relative to its function as the executive
official of the town. It has also been endowed with authority to hear issues involving property rights of
individuals and to come out with an effective order or resolution thereon. In this manner, it exercises quasi-
judicial functions. This power is obviously a truism in the matter of issuing demolition notices and/or orders
against squatters and illegal occupants through some of its agencies or authorized committees within its
respective municipalities or cities.
There is no gainsaying that a city mayor is an executive official nor is the matter of issuing demolition
notices or orders not a ministerial one. But then, it cannot be denied as well that in determining whether or
not a structure is illegal or it should be demolished, property rights are involved thereby needing notices
and opportunity to be heard as provided for in the constitutionally guaranteed right of due process. In
pursuit of these functions, the city mayor has to exercise quasi-judicial powers. Moreno, in his Philippine
Law Dictionary, 3rd Edition,defines quasi-judicial function as applying to the action discretion, etc. of
public administrative officers or bodies, who are required to investigate facts or ascertain the existence of
 facts, hold hearings, and draw conclusions from them, as a basis for their official action, and to exercise
discretion of a judicial nature (Midland Insurance Corp. v. Intermediate Appellate Court, 143 SCRA 458
[1986]). Significantly, the Notice of Demolition in issue was the result of the exercise of quasi-judicial power
by the Office of the Mayor.46
We also agree with the CA that the complaint of Baniqued states a cause of action. The averments in the complaint
"call for a determination of whether or not there is need for a court action or a court litigation to oust plaintiff from
the possession of the subject lot, or, it is within the jurisdictional prerogative of the Office of the Mayor to eject [an]
unlawful occupant from a private titled land he does not own."47
Lest this Decision be misunderstood, We hasten to clarify that We have not prejudged the merits of the case.
Whether or not Baniqued is, indeed, entitled to a writ of prohibition is a matter which the trial court should determine
in the first instance without further delay.
WHEREFORE, the appealed Decision is AFFIRMED. The case is REMANDED to the trial court for further
proceedings.
SO ORDERED.

TADLIP vs. BORRES, JR.

A.C. No. 5708 November 11, 2005

RESOLUTION

Lawyers in government service should be more sensitive in their adherence to their professional obligations
under the Code of Professional Responsibility, for their disreputable conduct is more likely to be magnified in the
public eye.[1] The actuations of respondent brought to light in this case bring disrepute not only to his good name,
but to the government and to the State. Restoration of public trust cannot ensue without an equivocal statement
from this Court that such behavior will not stand unpunished.

We consider the administrative liability of Atty. Fidel H. Borres, Jr. (respondent), a Provincial Agrarian
Reform Adjudicator (PARAD) of the Department of Agrarian Reform Regional Arbitration Board (DARAB) for
rendering a blatantly irregular decision.

The facts of the case are as follows:

On 3 October 1987, by virtue of Presidential Decree No. 27 (PD 27), the Ministry of Agrarian Reform issued
Original Certificate of Title No. P-106 (OCT No. P-106), Emancipation Patent No. A-028380 to Eusebio E. Arce
conveying to him Three Thousand Nine Hundred Eight (3,908) square meters of agricultural land situated in
Mambajao, Camiguin. The land was formerly owned by Angel Madarieta.[2]

Subsequently, on 14 December 1987, a Deed of Transfer under PD 27 was executed by Angel Madarieta,
as represented by his wife, Pelagia Madarieta (Madarieta) and Eusebio E. Arce.[3] The parties agreed that the land
would be given to Arce in consideration of Seven Hundred Fifty (750) kerosene cans of palay. [4]
Arce died on 23 December 1993. As he was succeeded by two minor daughters ages 5 and 6 years old,
herein complainant Tadlip, who is his nephew, assumed the responsibility of tilling the land. Tadlip caused the
reallocation of the disputed land through the aid of the Bureau of Legal Assistance, Department of Agrarian Reform,
Yuming, Mambajao, Camiguin (BLA-DAR) in a petition dated 9 October 1997 and docketed as DARAB Case No. X-
861.[5]

Respondent, as PARAD of the DARAB, issued an Order[6] dated 3 April 1998 granting the petition of
complainant reallocating the land to him and the heirs of Arce.
 However, the title to the parcels of land was never transferred to complainant and the heirs of Arce
because unknown to them, respondent rendered another Order[7] dated 26 January 1999 canceling the registration
of the same OCT No. P-106 and ordering the issuance of a transfer certificate of title ex parte in favor of Madarieta
in DARAB Case No. X-99-02.

As borne out by the records of the case, Madarieta filed two pleadings on 22 January 1999. The first was
a Petition[8] entitled In the Matter of Cancellation of Original Certificate of Title No. EP-106/Emancipation Patent No.
A-028380 and Retention Right docketed as DARAB Case No. X-99-02. Madarieta based her Petition on the ground
that she was not able to exercise her right of retention, the land is idle, abandoned, unattended and unproductive
and that the late Eusebio Arce did not comply with the agreed monthly amortization as payment for the lot. By the
nature of the pleadings filed, Madarieta obviously executed an ex parte proceeding. Hence, no attempt was made
to implead Tadlip or the Arce heirs, despite the existence of their legal interest over the property and reality that a
clear deprivation of such right would ensue should the petition be granted.

The second was a Complaint[9] entitled Pelagia Madarieta v. Heirs of Eusebio Arce/Bernardo A. Tadlip,
docketed as DARAB Case No. X-99-04 for Cancellation of Original Certificate of Title No. EP 106 and Retention. In
the said complaint, Madarieta substantially alleged the same facts and prayed for the same remedies except that
she included one more allegation, that which pertains to the reallocation of the land to complainant.

Complainant alleged that the Complaint was filed by Madarieta upon the instruction of respondent, to
correct the procedural flaw attending to her initial Petition.[10] Interestingly, complainant also asserts that the filing of
the petition and complaint of Madarieta was not simultaneously done albeit it would seem as if they were.
According to him, respondent PARAD, after rendering the Order dated 26 January 1999, advised Madarieta to file a
complaint impleading complainant and the heirs of Arce so as to make it appear that the cancellation of the title of
the emancipated land was regular and legal.[11] In effect, complainant maintains that the filing of the petition and the
complaint by Madarieta on 22 January 1999 was not simultaneous but successive,[12] where after respondent
rendered the Order for the petition, Madarieta thereafter filed the complaint at a later date but made it appear that
the same was also filed on 22 January 1999.

In any event, the Petition, despite its obvious flaws, was decided by respondent in favor of Madrieta just
four (4) days after it had been filed. Thus, OCT No. P-106 was ordered cancelled even before Tadlip or the heirs of
Arce had any possible opportunity to be heard.

Complainant discovered this fact only when the DARAB-Camiguin furnished the BLA-DAR a copy of
the Order in DARAB Case No. X-99-02 on 25 February 1999. Complainant filed an Urgent Motion for
Reconsideration[13] but this was denied by respondent in an Order [14] dated 19 March 1999. As if complainants
travails in the hands of respondent were not enough, respondent also rendered on 17 May 1999 a Decision[15] on
the Complaint in DARAB Case No. X-99-04 also adverse to complainant.

Matters were aggravated when Madarieta filed a motion for execution pending appeal on 25 May
1999.[16] The same was granted by respondent on 11 June 1999[17] despite the vehement opposition[18] of
complainant who cited procedural irregularities according to the DARAB Rules of Procedure, particularly the rule
that any motion for execution of the decision of the Adjudicator pending appeal shall be filed with the DARAB, and
not the adjudicator.[19]

Hence, on 20 March 2002, complainant filed this instant administrative complaint. On 7 August 2002, this
Court required respondent to comment on the complaint.
 Respondent, in his comment dated 9 December 2002, denied all the accusations hurled against him. He
related that complainant filed an appeal and certiorari case relative to the land dispute but instead of waiting for the
result, the latter filed another case before the Ombudsman and subsequently this administrative case.

In a resolution dated 19 February 2003, the Court referred the case to the Integrated Bar of the Philippines
(IBP) for investigation, report and recommendation.

The IBP found that respondent violated Canon I of the Code of Professional Responsibility by disregarding
and failing to apply the specific provisions of the 1994 New Rules of Procedure [20] (DARAB Rules) in disposing of
DARAB Case Nos. X-99-02 and X-99-04 and recommended that respondent be suspended from the practice of law
for a period of two (2) months with a warning that a repetition of the same or similar act will be dealt with more
severely.[21]
We agree with the findings of the IBP but hold that the recommended penalty is quite slight for the
infractions done by respondent.

This Court cannot delve into the factual or legal questions raised by complainant. We can only rule on its
administrative aspect. However, for us to fully dispose of the case, the multiple violations of respondent must be
subjected to scrutiny and scorn.

Respondent is not only a lawyer practicing his profession, but also a provincial adjudicator, a public officer
tasked with the duty of deciding conflicting claims of the parties. He is part of the quasi-judicial system of our
government. Thus, by analogy, the present dispute may be likened to administrative cases of judges whose
manner of deciding cases was similarly subject of respective administrative cases.

To hold the judge liable, this Court has time and again ruled that the error must be so gross and patent as
to produce an inference of ignorance or bad faith or that the judge knowingly rendered an unjust decision. [22] It must
be so grave and on so fundamental a point as to warrant condemnation of the judge as patently ignorant or
negligent.[23] Otherwise, to hold a judge administratively accountable for every erroneous ruling or decision he
renders, assuming that the judge erred, would be nothing short of harassment and that would be intolerable. [24]

However, it has also been held that when the law violated is elementary, the failure to know or observe it
constitutes gross ignorance of the law. The disregard of established rule of law which amounts to gross ignorance
of law makes a judge subject to disciplinary action.[25]

In Pesayco v. Layague,[26] the Court had the opportunity to declare that:

A judge must be acquainted with legal norms and precepts as well as with procedural
rules. When a judge displays an utter lack of familiarity with the rules, he erodes the publics
confidence in the competence of our courts. Such is gross ignorance of the law. One who accepts
the exalted position of a judge owes the public and the court the duty to be proficient in the law. . . .
Basic rules of procedure must be at the palm of a judges hands.[27]

Needless to say, respondent was sorely remiss in his duties as the PARAD of Camiguin in the disposition
of cases filed by Madarieta.

He violated Rule VI of the DARAB Rules, to wit:

 SECTION 1. Issuance of Summons, Time to Answer and Submission of Evidence. Upon
the filing of the complaint or petition, the hour/time, day, month, and year when it was filed shall be
stamped thereon. The corresponding summons and notice of hearing to the adverse party,
attaching therewith a copy of such complaint or petition, affidavit and documentary evidence if any,
shall be served by personal delivery or registered mail to the defendant or respondent within two
(2) days therefrom. The summons and notice of hearing shall direct the defendant or respondent to
file an answer to the complaint or petition and submit counter affidavit and other documentary
evidence, if any, within a non-extendible period of ten (10) days from receipt thereof furnishing a
copy to the petitioner or the complainant. The summons shall also specify the date, time and place
of the hearing and order the parties and their witnesses to appear at the scheduled date of hearing.
The aforementioned affidavits and counter-affidavits of the witnesses shall take the place of their
direct testimony. Failure of any party to submit his affidavits or counter affidavits as herein directed
will be interpreted by the Adjudicator or Board as a waiver to present evidence or that he has more
evidence to submit and the case could be considered submitted for decision.

Clearly, complainant was a party in interest in the two DARAB cases filed by Madarieta as he stood to be
adversely affected by the decision of respondent. Yet, he was never summoned in DARAB Case No. X-99-02,
which was decided against him just four (4) days after it was filed. Evidently complainant had no reasonable
opportunity to be heard before he was divested of the land over which respondent, just a few months earlier, had
affirmed complainants rights thereto.

It would be absurd to accept the reasoning of respondent that since complainant was not impleaded as a
party to DARAB Case No. X-99-02, the latter was not entitled to be notified of the hearing and the eventual
disposition of the case. The DARAB Rules requires the joinder of all parties-in-interest whether as defendants or
respondents. Parties-in-interest are defined as (a)ll persons who claim an interest in the dispute or subject matter
thereof adverse to complainant or petitioner, or who are necessary to a complete determination or settlement of the
issue involved therein.[28] Complainant, as the holder of title and possession of the property sought to be
reconveyed, is ineluctably a party-in-interest.

Respondent should have dismissed Madarietas petition for failure to implead complainant, the heirs of
Arce, and all others who derive title from them.[29]

Complainant intimates that the Complaint was instituted precisely to cure the defect attending the Petition.
The Court cannot conclude definitively that this remedial measure was instigated on the suggestion of the
respondent. But assuming this were true, respondents undue haste in granting the Petition just four days after it
was filed practically obviated whatever curative effect the Complaint may have served, since the relief sought in the
latter was the same already granted in the former. Whatever proceedings may have transpired in the hearing of
the Complaint, these were a redundancy, considering that the relief prayed for had already been granted.

Furthermore, as correctly observed by the IBP Commissioner, complainants urgent motion for
reconsideration may very well be considered by respondent as a motion for intervention and yet respondent denied
the same.

Remarkably, respondent, nine months prior to his Order dated 26 January 1999, has rendered
an Order dated 3 April 1998 reallocating the land in question from Arce to complainant. Respondent himself had
vested complainant with an interest in the lot with all the rights therewith accompanying the order of reallocation.
He, therefore, cannot afterwards deny such right or interest from complainant to defend the latters claim and
subsequently cancel OCT No. P-106 unilaterally. In doing so, complainants possession, if not ownership of the land
has been adversely affected.
 Complainant has also alleged that he was able to obtain positive action on his petition for reallocation only
after paying the respondent One Thousand (P1,000.00) pesos.[30] He also categorically states that there was a
rumored pay-off between respondent and the Madarieta Family. [31]Admittedly through, no other evidence was given
to corroborate the alleged pay-off and his payment of P1,000.00. Thus, we cannot deem these serious allegations
as proven. Still, the dubious nature of the decisions is inescapable, and on that basis administrative liability can
ensue.

Compounding respondents liability is the fact that in granting execution pending appeal, he also
disregarded Rule XII of the DARAB Rules, which states:

SECTION 2. Execution pending appeal. Any motion for execution of the decision of the
Adjudicator pending appeal shall be filed before the Board, and the same may be granted
upon showing good reasons under conditions which the Board may require. (Emphasis ours.)
It is unmistakably stated in unequivocal terms that execution pending appeal must be filed before the
Adjudication Board. Respondent violated this rule in rendering an order of execution pending appeal when such
authority has been given to the Board alone. Even the respondent cited the said provision of the DARAB Rules in
his position paper[32] and yet it seems that he merely dispensed of the rules and replaced it with his own system of
procedure contrary to the DARAB Rules.

In addition, on 14 May 1993, the DAR Region X, Macanhan, Carmen, Cagayan de Oro received an
advisory through an official radiophone message addressed to all Regional Agrarian Reform Adjudicators
(RARADs) and PARADs of the DAR from the then Undersecretary Lorenzo Reyes not to execute any ejection
proceedings promptly appealed to the DARAB.[33] On 15 September 1993, the same undersecretary issued another
official radiophone message addressed to RARAD Jimmy Tapangan of DAR Region X, Cagayan de Oro which is
faithfully reproduced as follows:

HELLO, PLEASE ADVISE OUR ADJUDICATORS NOT TO EXECUTE DECISIONS

WHERE NOTICE OF APPEAL WAS FILED WITHIN THE REGLEMENTARY PERIOD INSTEAD
THE RECORDS OF THE CASE SHOULD BE IMMEDIATELY FORWARDED TO THE BOARD PD
SOME MEMBERS OF THE BOARD ARE CONTEMPLATING OF THROWING THE BOOKS TO
THOSE WHO INSIST ON EXECUTING DECISIONS THAT ARE PROMPTLY INSPITE OF OUR
PREVIOUS ADVISES NOT TO DO SO PD THE BOARD HAS CONSISTENTLY RULED IN SO
MANY DECISIONS ALREADY THAT DECISIONS THAT ARE PROMPTLY APPEALED CAN NO
LONGER BE EXECUTED BY THE ADJUDICATOR CONCERENED PD THESE RADIOMESSAGE
IS THE OFFICIAL ADVISE VERBAL OF THE BOARD PD KEEP UP THE GOOD WORK
WARMEST REGARDS END. . . .[34]

Hence, as early as 1993, the RARADs and PARADs have been aware that executions pending appeal was
to be acted upon by the DARAB and not by them.

Respondents non-observance of the DARAB Rules on notice and hearing and his grant to Madarieta of her
motion for execution pending appeal in effect deprived complainant of the land he tills and the source of his income.
Complainant woke up one day not knowing that the emancipated land which he thought was already reallocated to
him was lost by order of respondent. He was not given the chance to defend his claim over the property. This is
tantamount to deprivation of property without due process of law, a constitutional guarantee available to every
individual.

The actual review of the subject issuance of the respondent should be undertaken in the proper judicial
proceedings, and not by this Court at this time via an administrative action. Nevertheless, respondents culpability
under the Code of Professional Responsibility is indubitable. As a lawyer, the IBP determined, and we subscribe to
such determination, that respondent violated Canon 1 of the Code of Professional Responsibility which states:
 Canon 1A lawyer shall uphold the Constitution, obey the laws of the land and promote
respect for law and for legal processes.

While the duty to uphold the Constitution and obey the laws is an obligation imposed upon every citizen, a
lawyer assumes responsibilities well beyond the basic requirements of good citizenship. As a servant of the law, a
lawyer should moreover make himself an exemplar of others to emulate.[35]

A member of the bar who assumes public office does not shed his professional obligations. Hence the
Code of Professional Responsibility, promulgated on 21 June 1988, was not meant to govern the conduct of private
practitioners alone, but of all lawyers including those in government service. This is clear from Canon 6 of the said
Code. Lawyers in government service are public servants who owe the utmost fidelity to the public service. Thus
they should be more sensitive in the performance of their professional obligations, as their conduct is subject to the
ever-constant scrutiny of the public.[36]

Respondent, as a Provincial Adjudicator of the DARAB, was reposed with a higher gravamen of
responsibility than a lawyer in private practice. The recommended penalty of two months suspension is too light
under the circumstances, and a penalty of six (6) months suspension more appropriate.

As held in recent cases,[37] the penalty for a judge found to be guilty of gross ignorance of the law is six (6)
months. In the case at bar, after due consideration of the facts involved, the Court believes and so holds that the
same penalty should be imposed upon respondent as he disregarded pertinent rules of procedure of the DARAB
that led to the unjust deprivation of complainant of his property.

WHEREFORE, premises considered, respondent is hereby SUSPENDED from the practice of law for a
period of six (6) months. Let a copy of this Resolution be furnished the Bar Confidant for appropriate annotation in
the record of respondent.

SO ORDERED

COMMISSION ON ELECTIONS vs. ESPAñOL

G.R. No. 149164-73 December 10, 2003

DECISION
This is a petition for certiorari and mandamus under Rule 65 of the Rules of Court, as amended, filed by the
Commission on Elections (COMELEC) for the nullification of the Order of the respondent judge dated February 20,
2001, denying the Omnibus Motion to Dismiss filed by the petitioner in Criminal Case Nos. 7960-00 to 7969-00, and
the Order dated May 16, 2001, denying the petitioners motion for reconsideration.
The Antecedents
During the elections on May 11, 1998, Florentino A. Bautista was the official candidate of the Lakas for the
position of Municipal Mayor of Kawit, Cavite. He executed an Affidavit-Complaint charging the incumbent Municipal
Mayor Atty. Federico Hit Poblete, Vice-Mayor Reynaldo Aguinaldo, Bienvenido Pobre, Arturo Ganibe, Leonardo
Llave, Diosdado del Rosario, Manuel Ubod, Angelito Peregrino, Mario Espiritu, Salvador Olaes and Pedro Paterno,
Jr. of violation of paragraphs (a) and (b) of Section 261 of the Omnibus Election Code (vote buying) and filed the
same with the Law Department of the COMELEC. The complaint was entitled Florentino A. Bautista vs. Federico A.
Poblete, et al., and docketed as EO Case No. 98-219. Of the 77 persons offered by the complainant to prove the
charges, 44 executed their respective affidavits and swore and subscribed to the truth thereof, on the vote-buying
of the respondents. The Law Department of the petitioner conducted the requisite preliminary investigation, after
which it submitted its comments and recommendations to the COMELEC En Banc. On February 25, 1999, the
COMELEC En Banc issued Resolution No. 99-0346, the dispositive portion of which reads:
RESOLVED: (a) to file the necessary information against respondents Federico A. Poblete, Bienvenido C. Pobre,
Reynaldo B. Aguinaldo, Leonardo Llave, Diosdado del Rosario, Angelito Peregrino, Mario Espiritu, Salvador Olaes,
Pedro Paterno, Jr., Arturo Ganibe and Manuel Ubod, before the proper Regional Trial Court of Cavite for violation
of Section 261 (a) and (b) of the Omnibus Election Code; and to authorize the Director IV of the Law Department to
designate a COMELEC prosecutor to handle the prosecution of the case until termination thereof, with the duty to
submit periodic report after every hearing of the case; and (b) to file a Motion before the Court for the preventive
suspension for a period of ninety (90) days of respondents Mayor Bienvenido Pobre, Vice-Mayor Reynaldo
Aguinaldo and Sangguniang Bayan members Leonardo Llave, Diosdado del Rosario, Angelito Peregrino, Mario
Espiritu, Salvador Olaes and Pedro Paterno, Jr., while the case is pending pursuant to Section 60 Chapter IV of
Republic Act No. 7160, otherwise known as the Local Government Code of 1991 specifically on the ground of
commission of an offense involving moral turpitude.[1]
The petitioner, through its Law Department, filed an Information against the respondents with the Regional
Trial Court of Cavite, docketed as Criminal Case No. 7034-99, raffled to Branch 90, presided by the respondent
judge. On May 10, 1999, the court issued an order directing the Law Department of the petitioner to conduct a
reinvestigation of the case, citing the ruling of this Court in Lozano vs. Yorac[2] and Nolasco vs. Commission on
Elections.[3]
In the meantime, Gerardo Macapagal and Inocencio Rodelas filed a criminal complaint for violation of Section
261(a) of the Omnibus Election Code (vote selling) against the witnesses of Florentino A. Bautista in Criminal Case
No. 7034-99. The complaint was docketed as I.S. No. 1-99-1080. The Office of the Cavite Provincial Prosecutor
conducted a preliminary investigation of the complaint, in his capacity as a deputy of the petitioner. On April 10,
2000, the Office of the Cavite Provincial Prosecutor issued a resolution in I.S. No. 1-99-1080 finding probable
cause against the respondents for violations of Section 261(a) and (b) of the Omnibus Election Code, and filed
separate Informations against them with the RTC of Cavite. The dispositive portion of the Resolution reads:
WHEREFORE, in the light of the preceding premises, let separate Informations for vote-selling penalized under
Section 261 (a) (b) of the Omnibus Election Code be immediately filed against all respondents, thirteen of whom
were deemed to have waived their right to present evidence in their behalf during the preliminary investigation. [4]
The cases were raffled and assigned to the RTC branches as follows:
Criminal Case No. Branch Number
7940-00 to 7949-00 and 7981-00 Branch 22
7973-00 to 7979-00 and 7970-00 Branch 21
7950-00 to 7959-00 and 7980-00 Branch 20
7960-00 to 7969-00 Branch 90
On June 15, 2000, the respondents in I.S. No. 1-99-1080 received copies of the Resolution of the Provincial
Prosecutor, and on June 23, 2000 appealed the same to the petitioner, contending that:
Violation of Section 261 (a)(2) of the Omnibus Election Code is an election offense under Article XXII of the same
code. Under Section 265 of the Code, it is this Honorable Commission which has the exclusive power to conduct
(the) preliminary investigation thereof, and to prosecute the same. As such, it is also this Honorable Commission
which has the exclusive power to review, motu proprio or through an appeal, the recommendation or resolution of
investigating officers in the preliminary investigation.
This appeal is, therefore, made pursuant to this Honorable Commissions exclusive power to conduct preliminary
investigation of all election offenses xxx and to prosecute the same and to review the recommendation or resolution
of investigating officers, like the chief state prosecutor and/or provincial/city prosecutors in preliminary
investigations thereof under Section 265 of the Omnibus Election Code and Section 10, Rule 34 of the COMELEC
Rules of Procedure.[5]
On July 6, 2000, the petitioner came out with Minute Resolution No. 00-1378 denying the appeal of the
respondents-appellants therein for lack of jurisdiction. But on the same day, the respondents-appellants filed an
Urgent Motion to Withdraw or Revoke the Delegated Authority of the Law Department to Direct the Said Office to
Suspend or Move for the Suspension of the Prosecution of Criminal Cases Nos. 7940-00 to 7981-00. The
respondents-appellants also filed a Manifestation with Urgent Motion to Set for Hearing Re: Appeal from the
Resolution of the Provincial Prosecutor of Resolution No. I.S. No. 1-99-1080. On September 7, 2000, the
COMELEC approved Resolution No. 00-1826, thus:
The Commission, after due deliberation, RESOLVED as it hereby RESOLVES to defer action on the aforesaid
matter. Meanwhile, to refer the same to the Law Department for comment and recommendation.
Let the Law Department implement this resolution.[6]
On October 24, 2000, the Law Department of the petitioner filed a motion before Branches 20, 21, 22 and 90,
praying for the suspension of the proceedings against all the accused until the petitioner shall have resolved the
incidents before it. The public prosecutor did not object to the motion. On October 25, 2000, RTC, Branch 22,
issued an Order granting the motion in the criminal cases before it.
Meanwhile, acting on the appeal of the respondents-appellants in I.S. No. 1-99-1080, Atty. Michael L. Valdez
submitted his recommendation in behalf of the COMELECs Law Department, Investigation and Prosecution
Division on November 13, 2000. It was recommended that the petitioner nullify the Resolution of the Office of the
Cavite Provincial Prosecutor in I.S. No. 1-99-1080, for the reason that the respondents-appellants are exempt,
under Section 28(4) of Republic Act No. 6646, from prosecution for violation of Section 261(a)(b) of the Omnibus
Election Code:
WHEREFORE, premises considered, the Law Department RECOMMENDS to declare as null and void the
Resolution of the Office of the Provincial Fiscal (Prosecutor) of Cavite in I.S. No. 1-99-1080, entitled Gerardo
Macapagal, et al. vs. Celerino Villarosa, et al., finding the existence of a probable cause against the respondents
for being a violation of Section 28 (4) of Rep. Act No. 6646, and to exempt them from criminal prosecution,
accused: Celerino Villarosa, Felisa Villarosa, Leonardo Collano, Azucena Collano, Jonathan Francisco, Berna
Francisco, David Zablan, Teresita Zablan, Rowel Del Rosario, Reynaldo Morales, Lolita Morales, Sherlita Borejon,
Leonardo Mabiliran, Virgilio Duco, Marina Duco, Bencio Planzar, Rudy Solomon, Nenita Viajador, Antonio De la
Cruz, Guinata Agarao, Luis Cantiza, Ramilo Pinote, Miriam Pinote, Wilfredo/Fredo Rodriguez, Marlene/Marlyn
Rodriguez, Rodelio Pinote, Saludia Pinote, Ronel Escalante, Alejandrino Duco, Dominga Duco, Joel De la Rosa,
Shirley De la Rosa, Ernesto Del Rosario, Nilda Del Rosario, Rodger Pinote, Ma. Theresa Pinote, Wilfredo Del
Rosario, Roberto Pinote, Jocelyn Pinote, Norma De la Rosa, Lita Montad and Nacy Daiz, whose cases are pending
before Branches Nos. 20, 21, 22, and 90, Regional Trial Court, Imus, Cavite, and who are witnesses of the
prosecution in Crim. Case No. 7034-99, Regional Trial Court, Branch 90, Imus, Cavite, and to direct the Law
Department to file the necessary motion before the court to dismiss their cases, by citing Section 28 (4) of Rep. Act
No. 6646.[7]
During the regular meeting of the COMELEC En Banc on November 23, 2000, the Chairman and two other
commissioners were on official leave. The remaining four commissioners met and issued Resolution No. 00-2453
approving the foregoing recommendation, to wit:
The Commission RESOLVED, as it hereby RESOLVES, to approve the recommendation of the Law Department as
follows:
1. to declare the Resolution of the Office of the Provincial Prosecutor of Cavite in I.S. No. 1-99-1080 (Gerardo
Macapagal, et al. vs. Celerino Villarosa, et al.) as null and void, and to exempt the aforementioned accused from
criminal prosecution pursuant to Section 28 (4) of R.A. No. 6646; and
2. to direct the Law Department to file the necessary motion to dismiss before the proper court the cases against
the herein-named accused.
Let the Law Department implement this resolution.
SO ORDERED.[8]
In compliance with the Resolution of the COMELEC En Banc, its Law Department, through Attys. Jose P.
Balbuena and Michael Valdez, filed with the RTC, Branch 90, an Omnibus Motion (1) Motion for Reconsideration
Re: Order of this Court dated November 22, 2000; (2) Motion for Leave to Reiterate Urgent Motion to Suspend
Proceedings; and (3) Motion to Dismiss filed on January 8, 2001. The Public Prosecutor opposed the petitioners
motion to dismiss on the following grounds: (a) the exemption under the last paragraph of Section 28 of Republic
Act No. 6646 applies only to the offense of vote-buying, as the accused in Criminal Case No. 7034-99 in which the
respondents-appellants gave their sworn statements was for vote-buying; this exemption will not apply to the
charge for vote-selling which was the crime charged in I.S. No. 1-99-1080; (b) the July 6, 2000 Resolution No. 00-
1378 of the petitioner had become final and executory; hence, it is no longer subject to review by the petitioner; and
(c) the review of the Provincial Prosecutors resolution made by the petitioner was a re-investigation of the case,
and was done without prior authority of the Court.
 On February 20, 2001, the trial court issued an Order denying the Omnibus Motion of the petitioner. The
petitioner filed a Motion for Reconsideration of the said order on March 31, 2000. The Provincial Prosecutor
opposed the motion. On May 16, 2001, the trial court issued an Order denying the said motion holding that the
petitioner had no absolute power to grant exemptions under Section 28 of Republic Act No. 6648. The trial court
also held that the issue of whether or not the accused are exempt from prosecution and consequent conviction for
vote-buying is a matter addressed to the Court and not to the petitioner.
In its petition at bar, the petitioner raises the following issues for resolution, viz:
(1) WHETHER THE ACCUSED ARE EXEMPT FROM CRIMINAL PROSECUTION PURSUANT TO SECTION 28
(4) OF R.A. No. 6646.
(2) WHETHER THERE IS NO NEED FOR AN EN BANC RESOLUTION REVOKING THE AUTHORITY OF THE
PROVINCIAL PROSECUTOR FROM HANDLING THE CASES FILED IN COURT SINCE THE COMELEC EN
BANC ALREADY DIRECTED THE LAW DEPARTMENT TO FILE A MOTION TO DISMISS THESE CASES; [9]
On the first issue, the petitioner contends that the complainants-appellees in I.S. No. 1-99-1080 failed to file
any motion for the reconsideration of the petitioners Resolution No. 00-2453 reversing Resolution No. 00-1378
which, in turn, dismissed the respondents-appellants appeal. Neither did the said complainants-appellees file a
petition for certiorari under Rule 65 of the Rules of Court from its Resolution No. 00-2453. Consequently,
Resolution No. 00-2453 has become final and executory; hence, is binding and conclusive on the complainants-
appellees, the Office of the Provincial Prosecutor and the herein respondent judge. The petitioner further asserts
that the respondents-appellants motion for reconsideration in I.S. No. 1-99-1080 of COMELEC Resolution No. 00-
1378 is not a prohibited pleading under Rule 13, Section 1, paragraph (d) of the COMELEC Rules of Procedure.
According to the petitioner, the prosecution of election offenses is under its sole control. Any delegation of its
authority to the Provincial or City Prosecutor to prosecute election cases may be revoked or withdrawn by it,
expressly or impliedly, at any stage of the proceedings in the RTC. The petitioner, through Atty. Michael Valdez of
its Law Department, had already entered his appearance for the petitioner as public prosecutor before the
respondent judge. The Provincial Prosecutor was, thus, ipso facto divested of his authority, as deputized
prosecutor, to represent the petitioner on the motion to dismiss and to prosecute the cases before the respondent
judge.
The respondent judge, for her part, avers that COMELEC Resolution No. 00-2453 was approved only by four
of the seven members of the petitioner sitting en banc, and as such, could not have validly revoked Resolution No.
00-1378 which was, in turn, approved by unanimous vote of the Commission Members sitting en banc. It behooved
the petitioner to conduct a joint reinvestigation in I.S. No. 1-99-1080 and EO No. 98-219 to ascertain whether the
respondents-appellants in I.S. No. 1-99-1080 were exempt from prosecution for vote-selling.
Finally, according to the respondent judge, Section 2, Rule 34 of the COMELEC Rules of Procedure is
contrary to Section 265 of the Omnibus Election Code, which does not allow the petitioner to withdraw its
deputation of Provincial or City Prosecutors.
We agree with the petitioner.
Under Article IX, Section 2(b) of the Constitution,[10] the petitioner is empowered to investigate and, when
appropriate, prosecute election offenses. The grant by the Constitution to the petitioner of the express power to
investigate and prosecute election offenses is intended to enable the petitioner to assure the people of a fine,
orderly, honest, peaceful and credible election.[11] Under Section 265 of the Omnibus Election Code, the petitioner,
through its duly authorized legal officers, has the exclusive power to conduct preliminary investigation of all election
offenses punishable under the Omnibus Election Code, and to prosecute the same. The petitioner may avail of the
assistance of the prosecuting arms of the government.[12] In Section 2, Rule 34 of the COMELEC Rules of
Procedure, all Provincial and City Prosecutors and/or their respective assistants are given continuing authority as
its deputies to conduct preliminary investigation of complaints involving election offenses under election laws and to
prosecute the same. The complaints may be filed directly with them or may be indorsed to them by the petitioner or
its duly authorized representatives.[13] The respondents assertion that Section 2, Rule 34, of the COMELEC Rules
of Procedure is a violation of Section 265 of the Omnibus Election Code has been laid to rest by this Court
in Margarejo vs. Escoses,[14] wherein this Court ruled that until revoked, the continuing authority of the Provincial or
City Prosecutors stays.
The deputation of the Provincial and City Prosecutors is necessitated by the need for prompt investigation and
dispensation of election cases as an indispensable part of the task of securing fine, orderly, honest, peaceful and
credible elections. Enfeebled by lack of funds and the magnitude of its workload, the petitioner does not have a
sufficient number of legal officers to conduct such investigation and to prosecute such cases. The prosecutors
deputized by the petitioner are subject to its authority, control and supervision in respect of the particular functions
covered by such deputation. The acts of such deputies within the lawful scope of their delegated authority are, in
legal contemplation, the acts of the petitioner itself.[15] Such authority may be revoked or withdrawn any time by the
petitioner, either expressly or impliedly, when in its judgment such revocation or withdrawal is necessary to protect
the integrity of the process to promote the common good, or where it believes that successful prosecution of the
case can be done by the petitioner. Moreover, being mere deputies or agents of the petitioner, provincial or city
prosecutors deputized by the petitioner are expected to act in accord with and not contrary to or in derogation of the
resolutions, directives or orders of the petitioner in relation to election cases such prosecutors are deputized to
investigate and prosecute. Otherwise, the only option of such provincial or city prosecutor is to seek relief from the
petitioner as its deputy.
The withdrawal by the petitioner of its deputation of the provincial or city prosecutors may not be interfered
with or overruled by the trial court. In this case, the petitioner had resolved to approve the recommendation of its
Law Department and nullified the Resolution of the Provincial Prosecutor in I.S. No. 1-99-1080, and directed its Law
Department, not the Provincial Prosecutor, to implement the said resolution and file the necessary motion to
dismiss Criminal Cases Nos. 7960-00 to 7969-00 pending with the respondent judge. The Law Department did file
before the respondent a Motion to Dismiss the said cases and a motion for the respondent to, in the meantime,
suspend the proceedings. Atty. Michael L. Valdez, a legal officer of the petitioners Law Department, entered his
appearance for the petitioner. The Provincial Prosecutor was thereby relieved of his deputation to represent the
petitioner in connection with the said motion. However, the Provincial Prosecutor refused to give way to the Legal
Officer of the petitioner and even opposed the said motion. The act of the Provincial Prosecutor constituted a
defiance of the resolution of the petitioner and should have been ignored by the respondent judge.
It bears stressing that when the Provincial Prosecutor conducted the preliminary investigation of I.S. No. 1-99-
1080, and filed the Information in Criminal Cases Nos. 7960-00 to 7969-00, he did so because he had been duly
deputized by the petitioner. He did not do so under the sole authority of his office. [16] The resolution of the Provincial
Prosecutor in I.S. No. 1-99-1080 was subject to appeal by the aggrieved party to the petitioner and may be
reversed by the petitioner in the exercise of its supervision and control of its deputies/subordinates. [17]
While it is the true that the petitioner initially dismissed the appeal of the respondents-appellants from the
resolution of the Provincial Prosecutor in I.S. No. 1-99-1080, the petitioner later gave due course and granted the
appeal, and nullified the resolution of the Provincial Prosecutor. Contrary to the latters claim, the petitioner did not
conduct a reinvestigation of I.S. No. 1-99-1080. It merely acted on the appeal of the respondents-appellants.
The respondent has failed to cite any COMELEC rule which requires the unanimous votes of all its
Commissioners sitting en banc for the reversal or revocation of a prior resolution approved by unanimous vote. On
the other hand, Section 5, Rule 2 of the COMELEC Rules of Procedure provides that:
SEC. 5. Quorum; Votes Required. (a) When sitting en banc, four (4) Members of the Commission shall constitute a
quorum for the purpose of transacting business. The concurrence of a majority of the Members of the Commission
shall be necessary for the pronouncement of a decision, resolution, order or ruling.
In this case, COMELEC Resolution No. 00-2453 was approved by four of the seven Commissioners of the
petitioner, three of whom were on official leave. Irrefragably, the said resolution of the petitioner giving due course
to the appeal of the respondents-appellants in I.S. No. 1-99-1087 was a valid reversal of COMELEC Resolution No.
00-1378 which initially denied the said appeal of the respondents-appellants.
The conduct of a preliminary investigation of election offenses for the purpose of determining whether or not
there is probable cause to believe that the accused is guilty of the offense charged and, therefore, should be
subjected to trial is the function of the petitioner.[18] The Court will not even interfere with the finding of the petitioner
absent a clear showing of grave abuse of discretion. Neither should the respondent. This principle emanates from
the COMELECs exclusive power to conduct preliminary investigation of all election offenses and to prosecute the
same except as may otherwise be provided by law. While it is the duty of the petitioner to prosecute those
committing election offenses, it is equally its duty not to prosecute those offenses where no probable cause exists.
The exclusion and inclusion of persons in Informations for election offenses is a prerogative granted by the law and
the Constitution to the petitioner.[19] The petitioner may not be compelled to charge a person or include the latter in
an Information when it believes that under the law and on the basis of the evidence in its possession, such person
should not be charged at all.
On the second issue, the petitioner contends that respondents-appellants in I.S. No. 1-99-1080, who were its
witnesses in Criminal Case No. 7034-99, had been granted exemptions from prosecution and punishment for the
offense of vote-buying, pursuant to Section 28(4) of Republic Act No. 6848. The petitioner avers that the
respondents-appellants in I.S. No. 1-99-1080, are also exempt from criminal liability for the offense of vote-selling;
hence, should not be charged with the latter offense. Thus, Criminal Cases Nos. 7960-00 to 7969-00 should be
dismissed. The petitioner avers that the witnesses had executed their respective affidavits as to where and how the
accused in Criminal Case No. 7034-99 committed the crimes of vote-buying. The petitioner also contends that the
charges of vote-selling filed against the said witnesses in Criminal Cases Nos. 7960-00 to 7969-00 were designed
to frighten and discourage them from testifying against the vote buyers, who are the accused in Criminal Case No.
7034-99. The respondent, thus, committed a grave abuse of discretion amounting to excess or lack of jurisdiction in
denying its motion to dismiss Criminal Cases Nos. 7960-00 to 7969-00 grounded on the exemption of the accused
therein.
For her part, the respondent avers that under Section 265 of the Omnibus Election Code, both the vote-buyer
and the vote-seller must be charged, investigated and prosecuted by the petitioner for violation of Section 261(a)(b)
of Republic Act No. 6648, as provided for in Section 28 of Rep. Act No. 6698. She cites the ruling of the Court
in Lozano vs. Yorac, et al.,[20] to support her stand. She contends that vote-buyers cannot be exempt from criminal
liability for vote-buying because there can be no vote-buying without someone selling his vote. Preliminary
investigations of the charges for vote-buying and vote-selling must be jointly conducted. This is to enable the
COMELECs Law Department to determine whether the witnesses in Criminal Case No. 7034-99 had voluntarily
presented themselves to give information on the vote-buying of the accused in Criminal Cases Nos. 7960-00 to
7969-00. Based on the records, the witnesses in Criminal Case No. 7034-99 executed their sworn statements only
after the preliminary investigation of EO No. 98-219; hence, the Law Department of the petitioner could not have
intelligently determined whether the said witnesses were exempt from prosecution or not.
We agree with the petitioner.
Section 261(a)(b) of the Omnibus Election Code penalizes vote-buying and vote-selling and conspiracy to
bribe voters.
(a) Vote-buying and vote-selling. (1) Any person who gives, offers or promises money or anything of value, gives or
promises any office or employment, franchise or grant, public or private, or makes or offers to make an expenditure,
directly or indirectly, or cause an expenditure to be made to any person, association, corporation, entity, or
community in order to induce anyone or the public in general to vote for or against any candidate or withhold his
vote in the election, or to vote for or against any aspirant for the nomination or choice of a candidate in a convention
or similar election process of a political party.
...
(b) Conspiracy to bribe voters. Two or more persons, whether candidates or not, who come to an agreement
concerning the commission of any violation of paragraph (a) of this section and decide to commit it.
Not only principals but also accomplices and accessories are criminally liable for election offenses. [21] Section
28 of Republic Act No. 6648 governs the prosecution of the crimes of vote-buying and vote-selling, thus:
SECTION 28. Prosecution of Vote-buying and Vote-selling. The presentation of a complaint for violations of
paragraph (a) or (b) of Section 261 of Batas Pambansa Blg. 881 supported by affidavits of complaining witnesses
attesting to the offer or promise by or of the voters acceptance of money or other consideration from the relatives,
leaders or sympathizers of a candidate, shall be sufficient basis for an investigation to be immediately conducted by
the Commission, directly or through its duly authorized legal officers, under Section 68 or Section 265 of said Batas
Pambansa Blg. 881.
Under the last paragraph of the said provision, any person guilty of vote-buying and vote-selling who
voluntarily gives information and willingly testifies on violations of paragraphs (a) and (b) of Section 261 of the
Omnibus Election Code shall be exempt from prosecution and punishment for the offense with reference to
which their information and testimony were given, without prejudice to their liability for perjury and false
testimony, thus:
SEC. 265. Prosecution. . . .
...
The giver, offerer, and promisor as well as the solicitor, acceptor, recipient and conspirator referred to in
paragraphs (a) and (b) of Section 261 of Batas Pambansa Blg. 881 shall be liable as principals: Provided, That any
person, otherwise guilty under said paragraphs who voluntarily gives information and willingly testifies on any
violation thereof in any official investigation or proceeding shall be exempt from prosecution and punishment for the
offenses with reference to which his information and and testimony were given: Provided, further, That nothing
herein shall exempt such person from criminal prosecution for perjury or false testimony.
 Under Section 265 of the Omnibus Election Code, the petitioner is mandated to conduct a preliminary
investigation of all election offenses and to prosecute the same. The general rule is that the petitioner must
investigate, charge and prosecute all those committing election offenses without any discrimination to ensure a
clean, orderly and speedy elections. A joint preliminary investigation thereof must be conducted and the appropriate
Information filed in court against all the offenders. To enable the petitioner to comply with its mandate to investigate
and prosecute those committing election offenses, it has been vested with authority under the last paragraph of
Section 28 of Republic Act No. 6648 to exempt those who have committed election offenses under Section 261 (a)
and (b) but volunteer to give informations and testify on any violation of said law in any official investigation or
proceeding with reference to which his information and testimony is given. The law is an immunity statute which
grants transactional immunity to volunteers from investigation and prosecution for violation of Section 261 (a) and
(b) of the Omnibus Election Code.[22] The immunity statute seeks a rational accommodation between the
imperatives of the privilege against self-incrimination and the legitimate demands of government to encourage
citizens, including law violators themselves, to testify against law violators. The statute operates as a complete
pardon for the offenses to which the information was given. The execution of those statutes reflects the importance
of the testimony therefor, and the fact that many offenses are of such character that the only persons capable of
giving useful testimony are those implicated in the crimes. Indeed, their origins were in the context of such offenses
and their primary use has been to investigate and prosecute such offenses. [23]Immunity from suit is the only
consequence flowing from a violation of ones constitutional right to be protected from unreasonable search and
seizure, his right to counsel and his right not to be coerced into confessing. [24] By voluntarily offering to give
information on violations of Section 261(a) and (b) and testify against the culprits, one opens himself to
investigation and prosecution if he himself is a party to any violation of the law. In exchange for his testimony, the
law gives him immunity from investigation and prosecution for any offense in Section 261(a) and (b) with reference
to which his information is given. He is, therefore, assured that his testimony cannot be used by the prosecutors
and any authorities in any respect, and that his testimony cannot lead to the infliction of criminal penalties on
him.[25] The testimony of a voluntary witness in accord with his sworn statement operates as a pardon for the
criminal charges to which it relates.[26]
It bears stressing that one may voluntarily give information on violations of Section 261(a) and (b) and execute
an affidavit before a complaint is filed with the petitioner, or any provincial or city prosecutor. This may be done
even during the preliminary investigation or even after an Information is filed, on the condition that his testimony
must be in accord with or based on his affidavit. If such witness later refuses to testify or testifies but contrary to his
affidavit, he loses his immunity from suit, and may be prosecuted for violations of Section 261(a) and (b) of the
Omnibus Election Code, perjury under Article 183 of the Revised Penal Code, or false testimony under Article 180
of the same Code.
The power to grant exemptions is vested solely on the petitioner. This power is concomitant with its authority
to enforce election laws, investigate election offenses and prosecute those committing the same. The exercise of
such power should not be interfered with by the trial court. Neither may this Court interfere with the petitioners
exercise of its discretion in denying or granting exemptions under the law, unless the petitioner commits a grave
abuse of its discretion amounting to excess or lack of jurisdiction.
There is no showing in the record that the petitioner committed abuse of discretion in granting immunity to the
witnesses in Criminal Case No. 7034-99 and in nullifying the Resolution of the Provincial Prosecutor in I.S. No. 1-
99-1080.
It cannot be over-emphasized that the authority given to the petitioner to grant exemptions should be used to
achieve and further its mandate to insure clean, honest, peaceful and orderly elections.
The respondents reliance on the ruling of this Court in Lozano v. Yorac is misplaced. The issue of the
application of the immunity statute was not raised in that case.
In sum then, the Court finds that the respondent committed a grave abuse of discretion amounting to excess
or lack of jurisdiction in denying the petitioners motion to dismiss Criminal Cases Nos. 7960-00 to 7969-00 before it
and the motion for reconsideration of the said denial.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders dated February 20,
2001 and May 16, 2001 are SET ASIDE. Respondent Judge Dolores Espaol, RTC, Imus, Cavite, Branch 90, is
directed to dismiss Criminal Cases Nos. 7960-00 to 7969-00. No costs.
SO ORDERED.
SETON vs. RODRIGUEZ
GR No. L-16285 Dec 29, 1960
110 Phil. 548

This is a petition for certiorari with preliminary injunction to annul an order of the Court of First Instance of Cebu
requiring the petitioners Jose Seton and Juliana Seton to surrender the owner's duplicate of Original Certificate of
Title No. RO-783 (0-244) to the Register of Deeds for the annotation of the rights acquired by the respondent
Ignacio Seton in the land covered by the title.
It appears from the recolrd that the original certificate of title above mentioned, which is in the possession of the
petitioners Jose and Juliana Seton, was issued in the name of their parents Baldomero Seton and Severa
Quimada, who died Intestate sometime in 1918 and 1940, respectively, leaving as their legitimate heirs their four
children, namely, the said petitioners and Andrica and Jacinto. On May 29, 1959, Jacinto's son, herein respondent
Ignacio Seton, filed a complaint in the Court of First Instance of Cebu against Jose, Andrica and Juliana for the
partition of the real estate left by the deceased spouses, with damages, alleging, among other things, that on June
10, 1952 he acquired by purchase and for valuable consideration all the rights and interests of his father therein.
(Civil Case No. 6174.)
On June 3, 1959, Ignacio Seton also filed a motion in another branch of the Court of First Instance of Cebu in the
original land registration proceedings, praying that Jose and Juliana Seton be ordered to deliver the owner's
duplicate of Original Certificate of Title No. RO-783 (0-244) to the Register of Deeds so that the deed of sale
executed by his father in his favotr may be annotated thereon.
Jose and Juliana Seton opposed the motion, alleging that the lots covered by the Torrens title had been partitioned
among the heirs thereto, including Ignacio Seton's father; that shortly after the death of their mother in 1940,
Jacinto Seton, Ignacio's father, sold his shares to Jose Seton and one Pedro Quimada, which transaction was
known to Ignacio; and that consequently, the deed of sale sought to be registered was 'fictitious, false and
fraudulent". The oppositors also invoked the pendency of the action for partition filed by Ignacio Seton against them
and Andrica Seton, wherein the validity of the sale between Jacinto Seton and his son Ignacio was raised.
Accordingly, in a "petition for writ of preliminary injunction" filed in the same proceedings, the said oppositors
prayed that the consideration of the motion for the surrender of title and annotation be held dn abeyance until after
the action for partition and damages is decided.
Before the petition for the issuance of a writ of preliminary injunction[1] could be heard, however, the Respondent
Judge on September 15, 1959 issued the order now complained of, requiring Jose and Juliana Seton to surrender
the owner's duplicate of Original Certificate of Title No. 0-783 (0-244) to the Register of Deeds of Cebu for the
annotation of the rights acquired by Ignacio Seton from his father Jacinto Seton. Reconsideration of the order
having been denied, Jose Seton and Juliana Seton filed a notice of appeal, appeal bond and record on appeal. The
appeal, however, was not allowed, the court below citing the ruling in the case of Government of the Philippines vs.
Payva (44 Phil, 629), "to the effect that the order requiring the holder of a duplicate certificate to surrender the same
for annotation of attachment or any other lien under Section 72 of the Land Registration Act is not appealable."
From this order, Jose and Juliaba Seton brought the case to this Court thru the present petition for certiorari. As
prayed for, the writ of preliminary injunction was issued upon the petitioners posting a bond of P200.00.
At the outset, it should be stated that the lower court erred in dismissing petitioners' record on appeal on the
authority of the ruling of this Court in the case of Government of the Philippines vs. Payva, supra. For it was
precisely held there by this Court that an order of the registration court requiring the holder of a duplicate certificate
of title for the purpose of annotating an attachment, lien, or adverse claim under section 72 of Act 496
is appealable because it resolves important questions as to the respective rights of the parties.
Going into the merits of the case, we do not, however, think that the lower court committed any error, or much less
abused its discretion, in issuing the order complained of requiring the petitioners to surrender the owner's duplicate
certificate of title for the annotation of the deed of sale in favor of respondent Ignacio Seton. Registration is a mere
ministerial act by which a deed, contract or instrument is sought to be inscribed in the records of the Office of the
Register of Deeds and annotated at the back of the certificate of title covering the land subject of the deed, contract
or instrument. Its purpose is to give notice thereof to all persons (sec. 51, Act No. 496) and does not declare that
the recorded instrument is a valid and subsisting interest in the land. This is so because the effect or validdty of the
instrument can only be determined in an ordinary case before the courts, not before a court acting merely as a
registration court which has no jurisdiction over the same. (Agricultural Credit Cooperative Association of
Hinigaran vs. Yusal, 107 Phil., 791.) In other words, registration only operates as a notice of the deed, contract or
instrument to others, but neither adds to its validity nor convert an invalid instrument into a valid one between the
parties. In the case of Gurbax Singh Pabla & Co. et al. vs. Reyes, et al., (92 Phil., 177; 48 Off. Gaz. 4365), this
Court had occasion to rule that "The supposed invalidity of the contracts of lease is no valid objection to their
registration, because invalidity is no proof of their nonexistence or a valid excuse for denying their registration * * * .
If the purpose of registration is merely to give notice, then questions regarding the effects or invalidity of
instruments are expected to be decided after, not before, registration. It must follow as a necessary consequence
that registration must first be allowed, and validity or effect litigated afterwards. (See also Register of Deeds of
Manila vs. Tinoco Vda. de Cruz, 95 Phil., 818; 53 Off. Gaz., 2804; Samanilla vs. Cajucom et al., 107 Phil., 432; 57
Off. Gaz. [33] 5876.)
In the case at bar, it will be noted that all that respondent Ignacio demands or prays for is the surrender of the
owner's duplicate of the original certificate of title so that the contract of sale in his favor affecting a portion of the
land covered by the title may be annotated thereon. Following the ruling in the cases above cited, the pendency of
the partition proceedings instituted by the respondent Ignacio Seton against his father's co-heirs, wherein the
validity of the sale of the latter's share to him is in issue, does not preclude said Ignacio Seton from requesting that
said sale be registered at the back of the certificate of title covering the land. Both cases may proceed
independently of each other. Where the claim or sale is adjudged to be invalid, its annotation may be cancelled and
if found by the court to be frivolous or vexatious the court may tax the adverse claimant double or treble costs in its
discretion. (Register of Deeds of Manila vs. Tinoco Vda. de Cruz, supra.)
Wherefore, the order complained of is affirmed, and the preliminary injunction heretofore issued dissolved. With
costs against the petitioners.

ABCEDE vs. IMPERIAL

G.R. No. L-13001 March 18, 1958

Prior to September 7, 1957, petitioner Alfredo Abcede filed, with the Commission on Elections, his certificate of
candidacy for the Office of the President of the Philippines, in connection with the elections to be held on November
12 of the same year. On or about said date, Abcede and other candidates were summoned by the Commission on
Elections to appear before the same on September 23, 1957, "to show cause why their certificates of candidacy
should be considered as filed in good faith and to be given due course," with the admonition that their failure to so
appear would be sufficient ground for the Commission to consider said certificates of candidacy as not filed in good
faith and not to give due course thereto. After due hearing, at which Abcede appeared and introduced evidence, the
Commission issued a resolution dated October 4, 1957, ordering that the certificates of candidacy of the persons
therein named, including that of said petitioner, "shall not be given due course." A reconsideration of such
resolution having been denied, Abcede filed with this Court a petition for certiorari and mandamus, praying that the
resolution be annulled and that his aforementioned certificate of candidacy be given due course. Upon motion of
petitioner herein, this Court issued a writ of preliminary injunction ordering the respondent to refrain and desist from
carrying out the resolution above referred to, pending the final disposition of the case at bar.
Insofar as petitioner herein is concerned, the action taken by the Commissision on Elections is based upon the
following facts, set forth in its said resolution, from which we quote:
Alfredo Abcede was a candidate for senator in 1953, again in 1955, in both of which his votes were nil. In
this election he presents his candidacy for President of the Philippines, with the redemption of the
Japanese war notes as his main program of government. It is of record that the Bureau of Posts, by Fraud
Order No. 2, dated November 2, 1955, banned from the use of the Philippine mail matter of whatever class
mailed by, or addressed to, theJapanese War Notes Claims Association of the Philippines, Inc., and its
agentand representatives, including Alfredo Abcede and Marciana Mesina-Abcede, which order was based
on the findings of the Securities and Exchange Commission, confirmed by the Secretary of Justice, that
said entity aid its agents and representatives, including Alfredo Abcede, are engaged in a scheme to obtain
money from the public by means of false or fraudulent pretenses. The Commission is convinced that the
certificate of candidacy of Alfredo Abcede was filed for motives other than a bona fide desire to obtain a
substantial number of votes of the electorate.
In holding that it has, under these facts the power not to give due course to petitioner's certficate of candidacy, the
Commission on Elections gave the following reasons:
The Commission believes that while Section 37 of the Revised Election Code imposes upon the
commission the ministerial duty to receive and acknowledge certificates of candidacy, the law leaves to the
Commission a measure:of discretion on whether to give due course to a particular certificate of candidacy
should it find said certificate of candidacy to have been filed not bona fide. We also believe that a certificate
 of candidacy is not bona fide when it is filed, as a matter of caprice or fancy, by a person who is incapable
of understanding the full meaning of his acts and the true significance of election and without any political
organization or visible supporters behind him so that he, has not even the tiniest chance to obtain the
favorable indorsement of a substantial portion of the electorate, or when the one who files the same exerts
no tangible effort, shown by overt acts, to pursue to a semblance of success his candidacy.
The law requires the certificate of candidacy to be under oath in acknowledgment of its serious character
as an indispensable segment in the process of election, the first step that a citizen has to take in seeking
public trust and in avoiding service to the common weal. It is a solemn matter, not to be taken lightly.
The giving due course to a certificate of candidacy is a process of no mean proportion, particularly for the
offices of President and Vice President of the Philippines and Senator which involve the printing at public
expense of around 136,000 copies of each certificate of candidacy; the printing of the names of the
candidates in several election forms; the mailing, sorting, and distribution of the copies of said certificates
of candidacy and forms among the 34,000 polling places throughout the country; the entering of the names
of the candidates by the board of inspectors in still other forms; etc. Conisidering all these, the Commission
is satisfied with the view that Congress could not have meant to make as a ministerial duty of the
Commission to give due course to every certificate of candidacy, no matter how senseless said certificate
of candidacy may be, thus in effect authorizing a meaningless expenditure of a considerable amount of
public funds, and in the process put added routinary burden on the already heavily burdened election
machinery, as well as shear off the election much of its dignity as a solemn process of democracy.
Based on existing records of the Commission and on evidence adduced during the hearing on the
certificates of candidacy mentioned above, the Commission finds, and so declares, that the said certificates
of candidacy have not been filed in good faith on grounds hereunder stated.
Section 36 of the Revised Election Code provides that 96 certificates of candidacy of candiddtes for President . . .
shall be filed with the Commission on Elections which shall order the preparation and distribution of copies for the
same to all the election precincts of the Philippines. . . .
It further provides that said certificates shall be distributed as follows:
. . . the Commission on Elections . . . shall immediately send copies thereof to the secretary of the
Provincial Board of each province where the elections will be held, and the latter shall in turn immediately
forward copies to all the polling places. The Commission on Elections shall communicate the names of said
candidates to the secretary of the provincial board by telegraph. If the certificate of candidacy is sent by
mail, it shall be by registered mail, and the date on which the package was deposited in the post-office may
be considered as the filing date thereof if confirmed by a telegram or radiogram addressed to the
Commission on Elections on the same date.
Moreover, pursuant to section 37 of said Code:
The Commission on Election, the secretary of the provincial board, and the municipal secretary, in their
respective cases, shall have the ministerial duty to receive the certificates of candidacy referred to in the
preceding section and to immediately acknowledge receipt thereof.
The foregoing provisions give the Commission no discretion to give or not to give due course to petitioner's
certificate of candidacy. On the contrary, the Conunission has, admittedly, the "ministerial" duty to receive said
certificate of candidacy. Of what use would it be to receive it if the certificate were not to be given due course? We
must not assume that Congress intended to require a useless act — that it would have imposed a mandatory duty
to do something vain, futile and empty.
Moreover, in the words of section 37, the Commission "shall immediately send copies" of said certificates to the
secretaries of the provincial boards. The compulsory nature of this requirement, evinced by the imperative
character generally attached to the term "shall", is stressed by the peremptory connotation of the adverb
"immediately."
Again, the Constitution fixes the qualifications for the office of the highest magistrate of the land. All possessors of
such qualifications are, therefore, deemed legally fit, at least, to aspire to such office and to run therefor, provided
that they file their respective certificates of candidacy within the time, at the place and in the manner provided by
law, and petitioner herein has done so.
Lastly, as the branch of the executive department — although independent of the President — to which the
Constitution has given the "exclusive charge" of the "enforcement and administration of all laws relative to the
conduct of elections," the power of decision of the Commission is limited to purely "administrative questions."
(Article X, sec. 2, Constitution of the Philippines.) It has no authority to decide matters "involving the right to vote". It
may not even pass upon the legality of a given vote (Nacionalista Party vs. Commission on Elections, * 47 Off.;
Gaz., [6], 2851). We do not see, therefore, how it could whether, if so granted — in the vague, abstract, indeter-
assert the greater and more far-reaching authority to determine who — among those possessing the qualifications
prescribed by the Constitution, who have complied with the procedural requirements relative to the filing of
certificates of candidacy — should be allowed to enjoy the full benefits intended by law therefor. The question
whether in order to enjoy those benefits — a candidate must be capable of "understanding the full meaning of his
acts and the true significance of election," and must have — over a month prior, to the elections (when the
resolution complained of was issued) "the tiniest chance to obtain the favorable indorsement of a substantial portion
of the electorate," is a matter of policy, not of administration and enforcement of the law, which policy must be
determined by Congress in the exercise of its legislative functions. Apart from the absence of specific statutory
grant of such general, broad power as the Commission claims to have, it is dubious minate and undefined manner
necessary in order that it could pass upon the factors relied upon in said resolution (and such grant must not he
deemed made, in the absence of clear and positive provision to such effect, which is absent in the case at bar) —
the legislative enactment would not amount to undue delegation of legislative power. (Schechter vs. U.S., 295 U.S.
495, 79 L. ed. 1570.).
The case of Ciriaco S. Garcia vs. Imperial, L-12930 (October 22, 1957) cited in respondent's answer is not in point.
That case referred to the certificates of candidacy of Ciriaco S. Garcia of San Simon, Pampanga, Carlos C. Garcia
of Iloilo City and Eulogio Palma Garcia of Butuan City, all for the Office of the President of the Philippines, filed in
September, 1957. The facts therein are set forth in the pertinent resolution of the Commission on Elections from
which we quote:
Ciriaco S. Garcia, . . . admitted, . . . that he had not up to the date of the hearing held any public meeting
relative to his candidacy; had not posted any handbills or posters or banners announcing candidacy; had
not established any national headquarters; and had no line up for vice-president, senators, or members of
Congress. In connection with the case of Ciriaco S. Garcia, counsel for the intervenor presented
documents as exhibits. . . . all showing that Ciriaco S. Garcia had not shown any active interest in his
candidacy. Relative to the case of Carlos C. Garcia, counsel for intervenor presented a witness, Salvador
del Rosario who testifed to the effect that he knows personally said Carlos C. Garcia as a former dress
maker and now maintains a bar in a city of Iloilo; that he has not done anything to promote his candidacy;
and that he is a brother-in-law of Atty. Tomas Vargas a prominent Liberal Party leader in the province of
iloilo. He also submitted as evidence the telegram of the provincial commanderr of Iloilo reporting that said
Carlos C. Garcia is not a well known person in Iloilo. And as regard Eulogio Palma Garcia, counsel for
intervenor likewise submitted a telegram of the provincial commander of Agusan to the effect that said
Eulogio Palma Garcia is an unknown person in Agusan. He farther pointed out that the address of said
Eulogio Palma Garcia, as appearing in this certificate of candidacy, is % Tranquilino O. Calo, Jr., a nephew
of ex-congressman Calo, and official candidate of the Liberal Party for Senator. (Emphasis ours.)
The findings of the Commission were as follows:
The Commission is convinced that the failure of Carlos C. Garcia, a bar tender, and Eulogio Palma Garcia,
a person who has not even a residence of his own, to appear before the Commission, notwithstanding the
mandatory statement issued them, which had been received in their behalf, to the effect that failure to
appear on their part before the Commission as required would be sufficient for the Commission to consider
their certificates of candidacy, as filed in bad faith, shows that they are not actually interested in the
outcome of their pretended candidacy, and/or that they fear that their personal appearance before the
Commission would not expose too clearly the true motives behind the filing of their certificates of
candidacy.
As regards Ciriaco S. Garcia, a former chief of police, with no visible property to his name, . . . the
Commission is likewise satisfied . . . that his certificate of candidacy was filed without the least idea of
actively pursuing the same, but simply to prejudice a legitimate and bona fide candidate, President Carlos
P. Garcia.
Each of said three certificates of candidacy is a well fitted piece in an overall conspired scheme to fairly
prejudice the candidacy of President Carlos P. Garcia. Even the circumstances of geography and of course
of names have been suitably played upon to achieve in the most effective way the desired objective
of destroying legitimate votes for the bona fide candidate. Ciriaco S. Garcia hails from Central Luzon;
Carlos C. Garcia is from Central Visayas; and Eulogio Palma Garcia is from Northern Mindanao. The
names used are such that all votes for "Carlos Garcia", "C. Garcia", "P. Garcia", and "Garcia" would, be
 declared stray. The mischief aimed to be realize by the plan is too plain to be missed by any impartial mind.
...
The Commission, . . . is clear in the conclusion that all raid three certificates of candidacy have been filed
not for the purpose of winning the election or even to obtain a substantial number of votes for the
presidency of the Philippines but for the purpose of prejudicing the candidacy of a candidate in good faith
by nullifying the votes cast for the same name and/or surname of said candidate in good faith.
xxx xxx xxx
We reiterate here what the Commission has already said in the similar case of Re-Certificate of Candidacy
of Eduardo A. Barreto. (Case No. 179):
The duty of the Commission under these circumstances is too plain to be mistaken. The law could not have
intended nor will the Commission allow itself to be made a party to fraud against the integrity and purity of
election. Election is not a game of mean political tricks where deceit wins a premium. It is an honest
process, governed by fair rules of law and good conduct. In election as well as in any other field of fair
contest, deceit cannot be allowed to clothe itself in legal technicalities and demand a prize. It must be
condemned and never tolerated. (Emphasis ours.)
In other words, the candidates in question did not really aspire to be elected President of the Philippines. Their
certificates of candidacy were filed merely for the purpose of nullifying, in effect, all votes cast in favor of "Garcia",
"C. Garcia", and "P. Garcia", even if the voters intended to vote for Carlos P. Garcia, the incumbent of said office.
The objective was, evidently, to prevent a faithful determination of the true will of the electorate. Had the certificates
of candidacy in question been given due course, whether or not such tax penalty, or sum has been election
inspectors, who would be at a loss as to whom to credit the votes cast for "Carlos Garcia", "C. Garcia", "P. Garcia",
and "Garcia" or whether said votes should not be counted, as stray votes. Thus, an opportunity would be created to
subject the election officers throughout the Philippines to complaints, either by the opponents of, the incumbent
President, if the votes were credited to him or by the Nacionalista Party, if the votes were counted in favor of either
Ciriaco S. Garcia, or Carlos C. Garcia, or Eulogio Palma Garcia, or considered as stray votes. What this could have
led to, or given an excuse for,public disorders which may not have been altogether unlikely, in the light of the
conditions then existing. Worse, still, there would have been no means, under the law, to ascertain whether the
aforementioned votes were intended for the incumbent President Carlos P. Garcia or for the petitioners in said
case. The action of the Commission therein tended, therefore, to insure free, orderly and honest elections, which is
its main Concern, under our fundamental law and the Revised Election Code. Such, however, is not the situation
obtaining in the case at bar.
Whether or not the Commission on Election should incur the expenses incident to the preparation and distribution
of copies of the certificates of candidacy of those who, in its opinion, do not have a chance to get a substantial
number of votes, is another question of policy for Congress,not the Commission, to settle. When the Revised
Election Code imposes upon the Commission the ministerial duty to receive those certificates and provides that
said Commission shall immediately prepare and distribute copies thereof to the offices mentioned in section 36 of
said Code, it necessarily implies that compliance with the latter provision is, likewise, ministerial. If the Commission
believes, however, that the effect thereof is to unnecessarily impose a useless burden upon the Government, then
the remedy is to call the attention of Congress thereto, coupled with the corresponding proposals,
recommendations, or suggestions for such amendments as may be deemed best, consistently with the democratic
nature of our political system.
Needless to say, the vigilant attitude of the Commission on Elections and the efforts exerted by the same to comply
with what it considers its duty, merit full and unqualified recognition, as well as commendation of the highest order.
In this particular case, however, the action of the Commission as regards petitioner's certificate of candidacy is
beyond the bounds of its jurisdiction, and, hence, void.
Wherefore, the aforementioned resolution of the Commission on Elections is hereby annulled, insofar as petitioner
Alfredo Abcede is concerned, and the writ of preliminary injunction heretofore issued made permanent, without
special pronouncement as to costs. It is so ordered.
CERAFICA vs. COMMISSION ON ELECTIONS
G.R. No. 205136 December 2, 2014

DECISION
For the consideration of the Court is the Special Civil Action for Certiorari under Rule 64 of the Revised Rules of
Court, assailing the ruling of respondent Commission on Elections (Comelec) which cancelled the Certificate of
Candidacy (COC) of Kimberly Da Silva Cerafica (Kimberly) and denied the substitution of Kimberly by petitioner
Olivia Da Silva Cerafica (Olivia).
On 1 October 2012, Kimberly filed her COC for Councilor, City of Taguig for the 2013 Elections. Her COC stated
that she was born on 29 October 1992, or that she will be twenty (20) years of age on the day of the elections, 1 in
contravention of the requirement that one must be at least twenty-three (23) years of age on the day of the
elections as set out in Sec. 9 (c) of Republic Act (R.A.) No. 8487 (Charter of the City of Taguig).2 As such, Kimberly
was summoned to a clarificatory hearing due to the age qualification.
Instead of attending the hearing,Kimberly opted to file a sworn Statement of Withdrawal of COC on 17 December
2012.3 Simultaneously, Olivia filed her own COC as a substitute of Kimberly. Owing to these events, the
clarificatory hearing no longer pushed through.
In a Memorandum dated 18 December 2012, Director Esmeralda Amora-Ladra (Director Amora-Ladra) of the
Comelec Law Department recommended the cancellation of Kimberly’s COC, and consequently, the denial of the
substitution of Kimberly by Olivia. Relying on Comelec Resolution No. 9551, 4 Director Amora-Ladra opined that it is
as if no COC was filed by Kimberly; thus, she cannot be substituted.
In a Special En Banc Meeting of the Comelec on 3 January 2013,5 the Comelec adopted the recommendation of
Director Amora-Ladra, cancelled Kimberly’s COC, and denied the substitution of Kimberly by Olivia as an effect of
the cancellation of Kimberly’s COC, viz:6
The Commission RESOLVED, as it hereby RESOLVES, to approve the foregoing recommendation of Director
Esmeralda-AmoraLadra, Law Department, as follows:
1. To cancelthe Certificate of Candidacy (COC) of aspirant Kimberly Da Silva Cerafica without prejudice to
any civil, criminal or administrative liability that she may have incurred pursuant to Section 14 of COMELEC
Resolution 9518; and
2. To deny the substitution of Kimberly Da Silva Cerafica by Olivia Da Silva Cerafica as an effect of the
cancellation of the COC of Kimberly.
Let the Law Department implement this resolution.
SO ORDERED.
Olivia then filed the present petition for certiorari with Prayer for the Issuance of a Temporary Restraining Order,
Status Quo AnteOrder, and/or Writ of Preliminary Mandatory Injunction, raising the following issues:7
I.
WHETHER PUBLIC RESPONDENT COMMISSION ON ELECTIONS ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND CONTRARY TO LAW AND
JURISPRUDENCE IN ISSUING THE ASSAILED MINUTE RESOLUTION RESULTING IN THE CANCELLATION
OF THE CERTIFICATE OF CANDIDACY (COC) OF ASPIRANT KIMBERLY DA SILVA CERAFICA AND THE
DENIAL OF THE SUBSTITUTION OF KIMBERLY DA SILVA CERAFICA BY OLIVIA DA SILVA CERAFICA AS AN
EFFECT OF THE CANCELLATION OF THE COC OF KIMBERLY.
II.
WHETHER PUBLIC RESPONDENT COMMISSION ON ELECTIONS ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND CONTRARY TO LAW AND
JURISPRUDENCE WHEN IT RULED THAT THERE WAS NO VALID SUBSTITUTION BY PETITIONER FOR
KIMBERLY RESULTING IN THE MOTU PROPRIO DENIAL OF PETITIONER’S CERTIFICATE OF CANDIDACY.
III.
WHETHER PUBLIC RESPONDENT COMMISSION ON ELECTIONS ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND CONTRARY TO LAW AND
JURISPRUDENCE IN ISSUING THE ASSAILED RESOLUTION WITHOUT GIVING PETITIONER AN
OPPORTUNITY TO BE HEARD, THEREBY RESULTING IN THE MOTU PROPRIODENIAL OF THE
SUBSTITUTION OF KIMBERLY DA SILVA CERAFICA BY OLIVIA DA SILVA CERAFICA.
In its Comment8 filed on 22 April 2013, respondent Comelec argued that Olivia cannot substitute Kimberly as the
latter was never an official candidate because she was not eligible for the post by reason of her age, and that,
moreover, the COC that Kimberly filed was invalid because it contained a material misrepresentation relating to her
eligibility for the office she seeks to be elected to.9 The Comelec further averred that it can cancel Kimberly’s COC
motu proprioas it may look into patent defects in the COCs, such as Kimberly’s failure to comply with the age
requirement.10
In her Reply11 filed on 10 May 2013, Oliviacountered that although Kimberly may not be qualified to run for election
because of her age, it cannot be denied that she still filed a valid COC and was, thus, an official candidate who may
be substituted.12 Olivia also claimed that there was no ground to cancel or deny Kimberly’s COC on the ground of
lack of qualification and material misrepresentation because she did not misrepresent her birth dateto qualify for the
position of councilor, and as there was no deliberate attempt to mislead the electorate, which is precisely why she
withdrew her COC upon learning that she was not qualified.13
At the outset, we note that a verification with the Comelec database yields the finding that Olivia was not among the
official candidates14 for the 2013 Elections and, thus, was not voted for.15 As such, a ruling on the present petition
would no longer be of practical use or value. Even if we were to resolve the petition for the purpose of determining
Olivia’s legal status as a legitimate and qualified candidate for public office, such purpose has been rendered
inconsequential as a result of the proclamation of the winning councilors for the 2013 elections.16
Be that as it may, the Court deems it opportune to address the merits of the case, if only to caution the Comelec
against the precipitate cancellation of COCs.
In Albaña v. Comelec,17 we held that where the issues have become moot and academic, there is no justiciable
controversy, thereby rendering the resolution of the same of no practical use or value. Nonetheless, courts will
decide a question otherwise moot and academic if it is capable of repetition, yet evading review. In this case, we
find it necessary to resolve the issues raised in the petition in order to prevent a repetition thereof and, thus,
enhance free, orderly, and peaceful elections.
VALID SUBSTITUTION
In declaring that Kimberly, being under age, could not be considered to have filed a valid COC and, thus, could not
be validly substituted by Olivia, we find that the Comelec gravely abused its discretion.
Firstly, subject to its authority over nuisance candidates 18 and its power to deny due course to or cancel COCs
under Sec. 78, Batas Pambansa (B.P.) Blg. 881, the Comelec has the ministerial duty to receive and acknowledge
receipt of COCs.19
In Cipriano v. Comelec,20 we ruled that the Comelec has no discretion to give or not to give due couse to COCs.
We emphasized that the duty of the Comelec to give due course to COCs filed in due form is ministerial in
character, and that whilethe Comelec may look into patent defects in the COCs, it may not go into matters not
appearing on their face. The question of eligibility or ineligibility of a candidate is thus beyond the usual and proper
cognizance of the Comelec.
Section 77 of the Omnibus Election Code (B.P. Blg. 881) provides for the procedure of substitution of candidates, to
wit:
Sec. 77. Candidates in case of death, disqualification or withdrawal of another. – If after the last day for the filing of
certificates of candidacy, an official candidate of a registered or accredited political party dies, withdraws or is
disqualified for any cause, only a person belonging to, and certified by, the same political party may file a certificate
of candidacy to replace the candidate who died, withdrew or was disqualified. The substitute candidate nominated
by the political party concerned may file his certificate of candidacy for the office affected in accordance with the
preceding sections not later than mid-day of election day of the election.
If the death, withdrawal or disqualification should occur between the day before the election and mid-day of election
day, said certificate may be filed with any board of election inspectors in the political subdivision where he is
candidate or, in case of candidates to be voted for by the entire electorate of the country, with the Commission.
Under the express provision of Sec. 77 of B. P. Blg. 881, not just any person, but only "an official candidate of a
registered or accredited political party" may be substituted. 21 In the case at bar, Kimberly was an official nominee of
the Liberal Party;22 thus, she can be validly substituted.
The next question then is whether Olivia complied with all of the requirements for a valid substitution; we answer in
the affirmative. First, there was a valid withdrawal of Kimberly’s COC after the last day for the filing of COCs;
second, Olivia belongs to and is certified to by the same political party to which Kimberly belongs; 23 and third, Olivia
filed her COC not later than mid-day of election day.24
In Luna v. Comelec,25 where the candidate, who was also under age, withdrew his COC before election day and
was substituted by a qualified candidate, we declared that suchsubstitution was valid. The Court eloquently
explained:
Substitution of Luna for Hans Roger was Valid
Luna contends that Hans Roger filed a valid certificate of candidacy and, subsequently, upon Hans Roger’s
withdrawal of his certificate of candidacy, there was a valid substitution by Luna. On the other hand, the COMELEC
ruled that Hans Roger, being under age, could not be considered tohave filed a valid certificate of candidacy and,
therefore, is not a valid candidate who could be substituted by Luna.
When a candidate files his certificate of candidacy, the COMELEC has a ministerial duty to receive and
acknowledge its receipt. Section 76 of the Omnibus Election Code(Election Code) provides:
Sec. 76. Ministerial duty of receiving and acknowledging receipt. – The Commission, provincial election supervisor,
election registrar or officer designated by the Commission or the board of election inspectors under the succeeding
section shall have the ministerial duty to receive and acknowledge receipt of the certificate of candidacy.
In this case, when Hans Roger filed his certificate of candidacy on 5 January 2004, the COMELEC had the
ministerial duty to receive and acknowledge receipt of Hans Roger’s certificate of candidacy. Thus, the COMELEC
had the ministerial duty to give due course to Hans Rogers certificate of candidacy.
On 15 January 2004, Hans Roger withdrew his certificate of candidacy. The Election Code allows a person who
has filed a certificate of candidacy to withdraw the same prior to the election by submitting a written declaration
under oath. There is no provision of law which prevents a candidate from withdrawing his certificate of candidacy
before the election.
On the same date, Luna filed her certificate of candidacy as substitute for Hans Roger. Section 77 of the Election
Code prescribes the rules on substitution of an official candidate of a registered political party who dies, withdraws,
or is disqualified for any cause after the last day for the filing of certificate of candidacy. Section 77 of the Election
Code provides:
Sec. 77. Candidates in case of death, disqualification or withdrawal of another. – If after the last day for the filing of
certificates of candidacy, an official candidate of a registered or accredited politicalparty dies, withdraws or is
disqualified for any cause, only a person belonging to, and certified by, the same political party may file a certificate
of candidacy to replace the candidate who died, withdrew or was disqualified. The substitute candidate nominated
by the political party concerned may file his certificate of candidacy for the office affected in accordance with the
preceding sections not later thanmid-day of election day of the election. If the death, withdrawal or disqualification
should occur between the day before the election and midday of election day, said certificate may be filed with any
board of election inspectors in the political subdivision where he is candidate or, in case of candidates to be voted
for by the entire electorate of the country, with the Commission.
Since Hans Roger withdrew his certificate of candidacy and the COMELEC found that Luna complied with all the
procedural requirements for a valid substitution, Luna can validly substitute for Hans Roger.
The COMELEC acted with grave abuse of discretion amounting to lack or excess of jurisdiction in declaring that
Hans Roger, being under age, could not be considered to have filed a valid certificate of candidacy and, thus, could
not be validly substituted by Luna. The COMELEC may not, by itself, without the proper proceedings, deny due
course to or cancel a certificate of candidacy filed in due form. In Sanchez vs. Del Rosario, the Court ruled that the
question of eligibility or ineligibility of a candidate for non-age is beyond the usual and proper cognizance of the
COMELEC.
Section 74 of the Election Code provides that the certificate of candidacy shall state, among others, the date of birth
of the person filing the certificate. Section 78 of the Election Code provides that in case a person filing a certificate
of candidacy has committed false material representation, a verified petition to deny due course to or cancel the
certificate of candidacy of said person may be filed at any time not later than 25 days from the time of filing of the
certificate of candidacy.
If Hans Roger made a material misrepresentation as to his date of birth or age in his certificate of candidacy, his
eligibility may only be impugned through a verified petition to deny due course to or cancel such certificate of
candidacy under Section 78 of the Election Code.
In this case, there was no petition to deny due course to or cancel the certificate of candidacyof Hans Roger. The
COMELEC only declared that Hans Roger did not file a valid certificate of candidacy and, thus, was not a valid
candidate in the petition to deny due course to or cancel Luna’s certificate of candidacy. In effect, the COMELEC,
without the proper proceedings, cancelled Hans Roger’s certificate of candidacy and declared the substitution by
Luna invalid.
It would have been different if there was a petition to deny due course to or cancel Hans Roger’s certificate of
candidacy.1âwphi1 For if the COMELEC cancelled Hans Roger’s certificate of candidacy after the proper
proceedings, then he is no candidate at all and there can be no substitution of a person whose certificate of
candidacy has been cancelled and denied due course. However, Hans Roger’s certificate of candidacy was never
cancelled or denied due course by the COMELEC.
Moreover, Hans Roger already withdrew his certificate of candidacy before the COMELEC declared that he was not
a valid candidate. Therefore, unless Hans Roger’s certificate of candidacy was denied due course or cancelled in
accordance with Section 78 of the Election Code, Hans Roger’s certificate of candidacy was valid and he may be
validly substituted by Luna.26 (Emphases supplied.)
LACK OF DUE PROCESS
Moreover, in simply relying on the Memorandum of Director Amora Ladra in cancelling Kimberly’s COC and
denying the latter’s substitution by Olivia, and absent any petition to deny due course to or cancel said COC, the
Court finds that the Comelec once more gravely abused its discretion. The Court reminds the Comelec that, inthe
exercise of it adjudicatory or quasi-judicial powers, the Constitution27 mandates it to hear and decide cases first by
Division and, upon motion for reconsideration, by the En Banc.
Where a power rests in judgment or discretion, so that it is of judicial nature or character, but does not involve the
exercise of functions of a judge, or is conferred upon an officer other than a judicial officer, it is deemed quasi-
judicial.28 As cancellation proceedings involve the exercise of quasi judicial functions of the Comelec, the Comelec
in Division should have first decided this case.
In Bautista v. Comelec, et al.,29 where the Comelec Law Department recommended the cancellation of a
candidate’s COC for lack of qualification, and which recommendation was affirmed by the Comelec En Banc, the
Court held that the Comelec En Banc cannot short cut the proceedings by acting on the case without a prior action
by a division because it denies due process to the candidate. The Court held:
A division of the COMELEC should have first heard this case. The COMELEC en banc can only act on the case if
there is a motion for reconsideration of the decision of the COMELEC division. Hence, the COMELEC en banc
acted without jurisdiction when it ordered the cancellation of Bautista’s certificate of candidacy without first referring
the case to a division for summary hearing.
xxxx
Under Section 3, Rule 23 of the 1993 COMELEC Rules of Procedure, a petition for the denial or cancellation of a
certificate of candidacy must be heard summarily after due notice. It isthus clear that cancellation proceedings
involve the exercise of the quasi-judicial functions of the COMELEC which the COMELEC in divisionshould first
decide. More so in this case where the cancellation proceedings originated not from a petition but from a report of
the election officer regarding the lack of qualification of the candidate in the barangay election. The COMELEC en
bane cannot short cut the proceedings by acting on the case without a prior action by a division because it denies
due process to the candidate.30 (Emphasis supplied.)
The determination of whether a candidate is eligible for the position he is seeking involves a determination of fact
where parties must be allowed to adduce evidence in support of their contentions. 31 We thus caution the Comelec
against its practice of impetuous cancellation of COCs via minute resolutions adopting the recommendations of its
Law Department when the situation properly calls for the case's referral to a Division for summary hearing.
WHEREFORE, premises considered, with the cautionary counsel that cancellation of certificate of candidacy is a
quasi-judicial process, and accordingly is heard by the Commission on Elections in Division and En Banc on
appeal, we DISMISS the present petition for being moot and academic.
SO ORDERED.
RIEL vs. WRIGHT
G.R. No. L-25679 August 5, 1926

STATEMENT
After the formal pleas, the petitioner alleges that on September 1, 1925, he was duly appointed a "temporary clerk"
in the office of the Secretary, Philippine Senate, with an agreed compensation of P40 per month, as shown by the
letter of appointment from the Secretary of the Senate, a copy of which is attached to the petition marked Exhibit A;
that he took his oath of office and entered on the discharge on his duties as "temporary clerk," and has performed
them from the date to the present time; that from February 1 to 14, 1926, there is due and owing him P20 for and
on account of his services as such clerk, for which amount a warrant was issued to and in his favor by the chairman
of the committee on accounts of the Philippine Senate, which is attached to the petition marked Exhibit B; that it is
the duty of the respondent to approve such warrant; but the said respondent, in violation of the clear legal rights of
the petitioner, and of his, the said respondent's plain duty in the premises, unjustly refused and still refuses to
approve said warrant; that at the time said warrant was presented to the respondent for approval, there was a large
amount of money in the Insular Treasury not otherwise appropriated by law and subject to be applied to the
payment of said warrant; that petitioner does not have any plain, speedy or adequate remedy, and prays for a writ
of mandamus against the Insular Auditor commanding him to sign the warrant.
For answer, the respondent admits the allegations in paragraphs 1, 2, and 3 of the petition, and specifically denies
all other allegations, and, as a first special defense, alleges that this court has no jurisdiction over the subject
matter, and that the petitioner has another plain, speedy, and adequate remedy. As second special defense, the
respondent then alleges that the appropriation for the petitioner is governed by the provisions of paragraph 2 under
section 18 of Act No. 2935, in connection with item No. 120 of the Appropriation Act for 1925, and item No. 134 of
the Appropriation Act for 1926, he being included among "employees rendering service before, during and several
days after a session;" that the Legislature closed its last session on November 9, 1925; and that the petitioner was
paid his salary up to and including January 31, 1926, which latter date was many more than several days after the
close of a session;" that for such reason, the respondent refused to sign the warrant, and for the further reason that
the services of the petitioner and like employees have been unnecessary since February 1, 1026, for the reason
that there have been one hundred and sixty-one more or less permanent employees on the payroll of the Senate;
that on January 29, 1926, the chairman of the Senate Committee on Accounts was advised that the respondent
would refuse the payment of such warrant; that on December 7th, such employees were duly notified that their
services would be dispensed will not or after January 1, 1926; that the present case is a test case, the decision of
which will effect the status of forty-seven other like employees.
It appears of record that on December 31, 1925, the Secretary of the Senate revoked his letter of December 7,
1925, and that the petitioner "was acquired to continue rendering services until further order."

JOHNS, J.:
The respondent appeared in person and read an exhaustive brief in which he forcibly contended that this court did
not have any jurisdiction over his official acts or any authority to compel him to sign the warrant, and claimed and
asserted that his powers and duties as Insular Auditor were in legal effect identical with those of the U. S.
Comptroller, and he then cited decisions of the Supreme Court of the United States to the effect that the court do
not have any control over, and do not review, the decisions of the Comptroller.
For a number of years, it has been and is now the policy of his court to follow and respect the decisions of the
Supreme Court of the United States in so far as those decisions construe or apply to the law of the Philippine
Islands, and if it be a fact that the Insular Auditor has the same powers and duties as the U. S. Comptroller, we
would follow and approve those decisions.
The voice of the argument made by the Insular Auditor in person lies in his assumption that, under the law of the
Philippine Islands, He has like powers and duties as the U. S. Comptroller under the laws of the United States.
As was pointed out in the Ynchausti case, 1 the law here expressly says that the decisions of the Insular Auditor are
binding upon the "executive branch" of the government. The fact that the law specifically says that his decisions are
binding upon the "executive branch" of the government, under all rules of statutory construction, clearly implies and
carries with it that his decisions are binding upon the executive branch only, and that they are not binding upon any
other branch of the government.
Under the law of Congress, there is no such limitation upon the powers and duties of the U. S. Comptroller. The
finality of his decisions is not confined or limited to the executive branch of the government, but they apply with
equal force and effect upon all branches. If and when the law is amended to confer upon the Insular Auditor of the
Philippine Islands like powers and duties as those of the U. S. Comptroller, the authorities cited by the Insular
Auditor would then be in point, and will be followed and approved by this court. Until such time as that is done our
decisions is overruled by the United States Supreme Court, upon that question, we will follow and approve the law
is laid down by this court in its former decisions. Neither is there any legal merit in the allegation made in the
answer, "that the services of the petitioner and the other employees of the same status are and have been
unnecessary since February 1, 1926." It is not for the Insular Auditor to say how many employees the Legislature
should have or the compensation which they would receive. That is a matter within the peculiar province of the
Legislature and for which its members are responsible to their constituents.
Be that as it may, this is petition for a mandamus in which the petitioner prays for a writ to compel the Insular
Auditor to sign the warrant in question. To obtain the writ, the petitioner must both allege and prove a clear legal
right to a valid warrant.
He alleges that on September 1, 1925, he was "duly appointed a "temporary clerk" in the office of the Secretary,
Philippine Senate," and the appointment itself shows that he is "a temporary clerk." He also alleges that he
accepted and continued in the performance of his duties from the date of his appointment "to the present time."
"That for his salary as such clerk for the period from February 1 to 14, 1926, there is now due the petitioner the sum
of 20," for which a warrant was duly drawn and which the respondent refused to sign "in violation of the clear legal
rights of the petitioner," and that he unjustly refused and still refuses to approve said warrant."
The answer alleges "that the Philippine Legislature closed its last session on November 9, 1925," and that the
petitioner was paid his corresponding salary to January 31, 1926. "That the respondent refused to approve the
payment of the alleged salary of the petitioner from February 1, 1926, up to the present time for the reason that
prior to February 1, 1926, very many more than "several days" had elapsed since the closing of the last session of
the Philippine Legislature . . . ."
Section 18 of Act No. 2935 says:
The following rules are hereby establishment regarding the appropriations for the Legislature and the
Departments, Bureaus, offices or dependencies of the Insular Government, and shall not be understood to
be repealed by any other law unless expressly repealed:
And subdivision 2 of that section provides:
The appropriation for "supplementary force" shall be understood to be available for the payment of officers
appointed in accordance with section one hundred of the Administrative Code; of employees rendering
service before, during, and several days after a session, and employees within and outside of the
Philippine Islands . . .
It must be conceded that the services of the petitioner come under the provision for "the appropriation for
supplementary force." That is to say, that he was employed as a "temporary clerk," and as such he is distinguished
from a "permanent employee" of the Legislature, and that the services in question were rendered eighty-two days
after the final adjourment of the Legislature. Hence, if the words "several days after a session" cannot legally be
construed to cover and apply to the period in question, the petitioner was not legally employed, and is not entitled to
the compensation in question.
No authority has been cited, and none will ever be found, construing the words "several days" to cover and include
a period of eighty-two days. A day has twenty-four hours, and there are seven days in a week, and thirty days in a
month, and twelve months, in a year. In using the words "several days after a session," the Legislature must have
known the meaning of the words and their legal force and effect, and it is the duty of the court to so construe them.
It is unnecessary in this opinion to define or specify the exact period of time meant by "several days after a session"
as used in the Act. But we do hold that, as to the "supplementary force," the words cannot be construed to mean or
apply to a period of eighty-two days, "after a session." Giving them this construction, it follows that the petitioner
has no legal right to compensation for the services in question.
Apparently recognizing the legal force and effect of the words used, the petitioner contends that section 18 of Act
No. 2935 is unconstitutional, because (a) it embraces two subjects, and "(b) that one of the subjects is not
expressed in the title of the bill." It is entitled "an Act appropriating funds for the necessary expenses of the
Government of the Philippine Islands during the fiscal year ending December thirty-first, nineteen hundred and
twenty-on, and for other purposes." And section 18 provides that the following rules are established regarding
appropriations for the Legislature, and shall not be understood to be repealed by any other law unless expressly
repealed," which has not been done. The Act in question must be construed as a whole, and, as so construed,
section 18 is germane to the Act. That is to say, that the only appropriation which the Legislature has ever made for
"supplementary force" is for "employees rendering service before, during, and several days after a session," and
that upon no legal principle can the words "several days after a session" be construed to cover and include services
rendered on and after a period of eighty-two days after the Legislature had adjourned. In legal effect any other
construction would nullify the language used as to time, and destroy the meaning of the words "supplementary
force," and make a "temporary clerk" a "permanent employee" of the Legislature.
For such reasons, the writ is denied and the petition dismissed, with costs in favor of the respondent.
So ordered.

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI) vs. NTC

G.R. No. 93237 November 6, 1992

Private respondent Juan A. Alegre's wife, Dr. Jimena Alegre, sent two (2) RUSH telegrams through petitioner
RCPI's facilities in Taft Ave., Manila at 9:00 in the morning of 17 March 1989 to his sister and brother-in-law in
Valencia, Bohol and another sister-in-law in Espiritu, Ilocos Norte, with the following identical texts:
MANONG POLING DIED INTERMENT TUESDAY 1
Both telegrams did not reach their destinations on the expected dates. Private respondent filed a letter-complaint
against the RCPI with the National Telecommunications Commission (NTC) for poor service, with a request for the
imposition of the appropriate punitive sanction against the company.
Taking cognizance of the complaint, NTC directed RCPI to answer the complaint and set the initial hearing of the
case to 2 May 1989. After two (2) resettings, RCPI moved to dismiss the case on the following grounds:
1. Juan Alegre is not the real party in interest;
2. NTC has no jurisdiction over the case;
3. the continued hearing of the case violates its constitutional right to due process of law. 2

RCPI likewise moved for deferment of scheduled hearings until final determination of its motion to dismiss.
On 15 June 1989, NTC proceeded with the hearing and received evidence for private respondent Juan Alegre. On
3 October 1989, RCPI's motion to dismiss was denied, thus:
The herein complainant is the husband of the sender of the "rush" telegram that respondent
allegedly failed to deliver in a manner respondent bound itself to undertake, so his legal interest in
this administrative case cannot be seriously called in question. As regards the issue of jurisdiction,
the authority of the Commission to hear and decide this case stems from its power of control and
supervision over the operation of public communication utilities as conferred upon it by law.
Besides, the filing of a motion to dismiss is not allowed by the rules (Section 1, Rule 12, Rules of
Practice and Procedures). Following, however, the liberal construction of the rules, respondent (sic)
motion shall be treated as its answer or be passed upon after the conclusion of the hearing on the
merits. . . . 3
Hearings resumed in the absence of petitioner RCPI which was, however, duly notified thereof. On 27 November
1989, NTC disposed of the controversy in the following manner:
WHEREFORE, in view of all the foregoing, the Commission finds respondent administratively liable
for deficient and inadequate service defined under Section 19(a) of C.A. 146 and hereby imposes
the penalty of FINE payable within thirty (30) days from receipt hereof in the aggregate amount of
ONE THOUSAND PESOS (P1,000.00) for:
1. Rush Telegram sent to Valencia, Bohol on March 17, 1989 and received on March 21, 1989
3 days x P200.00 per day = P600.00
2. Rush Telegram sent to Espiritu, Ilocos Norte on March 17, 1989 and received on March 20,
1989
 2 days x P200.00 per day = P400.00
Total = P1,000.00
ENTERED. November 27, 1989. 4
A motion for reconsideration by RCPI reiterating averments in its earlier motion to dismiss was denied for lack of
merit; 5 hence, this petition for review invoking C.A. 146 Sec. 19(a) which limits the jurisdiction of the Public Service
Commission (precursor of the NTC) to the fixing of rates. RCPI submits that its position finds support in two (2)
decided cases 6 identical with the present one. Then Justice (later Chief Justice) Fernando writing for the Court
stated:
. . . There can be no justification then for the Public Service Commission imposing the fines for
these two petitions. The law cannot be any clearer. The only power it possessed over radio
companies, as noted was the (sic ) fix rates. It could not take to task a radio company for
negligence or misfeasance. It was bereft of such competence. It was not vested within such
authority. . . .
The Public Service Commission having been abolished by virtue of a Presidential Decree, as set
forth at the outset, and a new Board of Communications having been created to take its place,
nothing said in its decision has reference to whatever powers are now lodged in the latter body. . . .
. . . (Footnotes omitted)
Two (2) later cases, 7 adhering to the above tenet ruled:
Even assuming that the respondent Board of Communications has the power of jurisdiction over
petitioner in the exercise of its supervision to insure adequate public service, petitioner cannot be
subjected to payment of fine under sec. 21 of the Public Service Act, because this provision of the
law subjects to a fine every public service that violates or falls (sic) to comply with the terms and
conditions of any certificate or any orders, decisions and regulations of the Commission. . . . .
The Office of the Solicitor General now claims that the cited cases are no longer applicable, that the power and
authority of the NTC to impose fines is incidental to its power to regulate public service utilities and to supervise
telecommunications facilities, which are now clearly defined in Section 15, Executive Order No. 546 dated 23 July
1979: thus:
Functions of the Commission. The Commission shall exercise the following functions:
xxx xxx xxx
b. Establish, prescribe and regulate the areas of operation of particular operators of the public
service communications;
xxx xxx xxx
h. Supervise and inspect the operation of radio stations and telecommunications facilities.
Regulatory administrative agencies necessarily impose sanctions, adds the Office of the Solicitor General. RCPI
was fined based on the finding of the NTC that it failed to undertake adequate service in delivering two (2) rush
telegrams. NTC takes the view that its power of supervision was broadened by E. O. No. 546, and that this
development superseded the ruling in RCPI vs. Francisco Santiago and companion cases.
The issues of due process and real parties in interest do not have to be discussed in this case. This decision will
dwell on the primary question of jurisdiction of the NTC to administratively impose fines on a telegraph company
which fails to render adequate service to a consumer.
E. O. 546, it will be observed, is couched in general terms. The NTC stepped "into the shoes" of the Board of
Communications which exercised powers pursuant to the Public Service Act. The power to impose fines should
therefore be read in the light of the Francisco Santiago case because subsequent legislation did not grant
additional powers to the Board of Communications. The Board in other words, did not possess the power to impose
administrative fines on public services rendering deficient service to customers, ergo its successor cannot arrogate
unto itself such power, in the absence of legislation. It is true that the decision in RCPI vs. Board of
Communications seems to have modified the Santiago ruling in that the later case held that the Board of
Communications can impose fines if the public service entity violates or fails to comply with the terms and
conditions of any certificate or any order, decision or regulation of the Commission. But can private respondent's
complaint be similarly treated when the complaint seeks redress of a grievance against the company? 8 NTC has
no jurisdiction to impose a fine. Globe Wireless Ltd. vs.Public Service Commission (G. R. No. L-27250, 21 January
1987, 147 SCRA 269) says so categorically.
Verily, Section 13 of Commonwealth Act No. 146, as amended, otherwise known as the Public
Service Act, vested in the Public Service Commission jurisdiction, supervision and control over all
public services and their franchises, equipment and other properties.
xxx xxx xxx
The act complained of consisted in petitioner having allegedly failed to deliver the telegraphic
message of private respondent to the addressee in Madrid, Spain. Obviously, such imputed
negligence has nothing whatsoever to do with the subject matter of the very limited jurisdiction of
the Commission over petitioner.
Moreover, under Section 21 of C. A. 146, as amended, the Commission was empowered to impose
an administrative fine in cases of violation of or failure by a public service to comply with the terms
and conditions of any certificate or any orders, decisions or regulations of the Commission.
Petitioner operated under a legislative franchise, so there were no terms nor conditions of any
certificate issued by the Commission to violate. Neither was there any order, decision or regulation
from the Commission applicable to petitioner that the latter had allegedly violated, disobeyed,
defied or disregarded.
No substantial change has been brought about by Executive Order No. 546 invoked by the Solicitor General's
Office to bolster NTC's jurisdiction. The Executive Order is not an explicit grant of power to impose administrative
fines on public service utilities, including telegraphic agencies, which have failed to render adequate service to
consumers. Neither has it expanded the coverage of the supervisory and regulatory power of the agency. There
appears to be no alternative but to reiterate the settled doctrine in administrative law that:
Too basic in administrative law to need citation of jurisprudence is the rule that jurisdiction and
powers of administrative agencies, like respondent Commission, are limited to those expressly
granted or necessarily implied from those granted in the legislation creating such body; and any
order without or beyond such jurisdiction is void and ineffective . . . (Globe Wireless case, supra).
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE for lack of jurisdiction of the NTC to
render it. The temporary restraining order issued on 18 June 1990 is made PERMANENT without prejudice,
however, to the filing by the party aggrieved by the conduct of RCPI, of the proper action in the proper forum. No
costs.
SO ORDERED.